Eight percent fewer homes will transact in 2014 than normal, purely due to student loan debt, according to analysis by Rick Palacios, Jr., and Ali Wolf of John Burns Real Estate Consulting.
In a new 30-page paper, the firm assesses the impact of student loans on home buying for households under the age of 40. Its conclusion: 414,000 transactions will be lost in 2014 due to student debt. At a typical price of $200,000, that equals $83 billion in lost volume.
Palacios and Wolf explain their methodology and findings:
The analysis was quite complicated and involved a few assumptions, but we believe it is conservative, primarily because we looked only at those under the age of 40 with student debt.
At a high level, the math is as follows:
• Student debt has ballooned from $241 billion to $1.1 trillion in just 11 years.
• 29 million of the 86 million people aged 20-39 have some student debt.
• Those 29 million individuals translate to 16.8 million households.
• Of the 16.8 million households, 5.9 million (or 35%) pay more than $250 per month in student loans, which inhibits at least $44,000 per year in mortgage capability for each of them.
• About 8% of the 20-39 age cohort usually buys a home each year, which would be 1.35 million transactions per year.
• Using previous academic literature as a benchmark for our own complicated calculation, we then estimated that today's purchase rate is reduced from the normal 8% depending on the level of student debt--ranging from 6.9% for those paying less than $100 per month in student loans to less than 1% for those paying over $1,300 per month. Other factors contribute to even less entry-level buying today.
While we applaud the increasing education, we need to realize that it comes with a cost known as student debt. We raised the red flag on student debt back in 2011 and continue to believe that this debt will delay homeownership for many, or at least require that they buy a less expensive home.
Related Stories
| Mar 2, 2011
How skyscrapers can save the city
Besides making cities more affordable and architecturally interesting, tall buildings are greener than sprawl, and they foster social capital and creativity. Yet some urban planners and preservationists seem to have a misplaced fear of heights that yields damaging restrictions on how tall a building can be. From New York to Paris to Mumbai, there’s a powerful case for building up, not out.
| Mar 1, 2011
Smart cities: getting greener and making money doing it
The Global Green Cities of the 21st Century conference in San Francisco is filled with mayors, architects, academics, consultants, and financial types all struggling to understand the process of building smarter, greener cities on a scale that's practically unimaginable—and make money doing it.
| Mar 1, 2011
How to make rentals more attractive as the American dream evolves, adapts
Roger K. Lewis, architect and professor emeritus of architecture at the University of Maryland, writes in the Washington Post about the rising market demand for rental housing and how Building Teams can make these properties a desirable choice for consumer, not just an economically prudent and necessary one.
| Mar 1, 2011
New survey shows shifts in hospital construction projects
America’s hospitals and health systems are focusing more on renovation or expansion than new construction, according to a new survey conducted by Health Facilities Management magazine and the American Society for Healthcare Engineering (ASHE). In fact, renovation or expansion accounted for 73% of construction projects at hospitals responding to the survey.
| Mar 1, 2011
AIA selects 6 communities for long-term sustainability program
The American Institute of Architects today announced it has selected 6 communities throughout the country to receive technical assistance under the Sustainable Design Assessment Team (SDAT) program in 2011. The communities selected are Shelburne, Vt., Apple Valley, Mn., Pikes Peak Region, Co., Southwest DeKalb County, Ga., Bastrop, Tx., and Santa Rosa, Ca. The SDAT program represents a significant institutional investment by the AIA in public service work to assist communities in developing policy frameworks and long term sustainability plans.
| Feb 24, 2011
Perkins+Will designs 100 LEED Certified buildings
Perkins+Will announced the Leadership in Energy and Environmental Design (LEED) certification of its 100th sustainable building, marking a key milestone for the firm and for the sustainable design industry. The Vancouver-based Dockside Green Phase Two Balance project marks the firm’s 100th LEED certified building and is tied for the highest scoring LEED building worldwide with its sister project, Dockside Green Phase One.
| Feb 24, 2011
New reports chart path to net-zero-energy commercial buildings
Two new reports from the Zero Energy Commercial Buildings Consortium (CBC) on achieving net-zero-energy use in commercial buildings say that high levels of energy efficiency are the first, largest, and most important step on the way to net-zero.
| Feb 24, 2011
Lending revives stalled projects
An influx of fresh capital into U.S. commercial real estate is bringing some long-stalled development projects back to life and launching new construction of apartments, office buildings and shopping centers, according to a Wall Street Journal article.
| Feb 23, 2011
London 2012: What Olympic Park looks like today
London 2012 released a series of aerial images that show progress at Olympic Park, including a completed roof on the stadium (where seats are already installed), tile work at the aquatic centre, and structural work complete on more than a quarter of residential projects at Olympic Village.
| Feb 23, 2011
Call for Entries: 2011 Building Team Awards, Deadline: March 25, 2011
The 14th Annual Building Team Awards recognizes newly built projects that exhibit architectural and construction excellence—and best exemplify the collaboration of the Building Team, including the owner, architect, engineer, and contractor.
