The Impact of Resuming Student Loan Payments on the US Housing Market

As October approaches, nearly 44 million student loan borrowers in the United States are preparing to resume their loan payments. This significant event is expected to have a far-reaching impact on various aspects of the economy, including the housing market. In this blog post, we will delve into how the restart of student loan payments will affect homeowners, prospective buyers, and home prices, as well as how homebuyer demographics may shift in response to these changes.

The Impact on Current Homeowners

For homeowners who are juggling both a mortgage and student loan debt, the resumption of student loan payments means an added monthly expense. Kurt Carlton, co-founder and president of New Western, a private marketplace for residential investment properties, warns that this can pose risks. Depending on factors such as debt amount, monthly mortgage payments, and personal finances, some homeowners may struggle, possibly leading to defaults and even foreclosures. Such financial setbacks can tarnish credit scores and complicate future borrowing endeavors.

How the End of the Student Loan Pause Could Affect Prospective Buyers

Prospective homebuyers should take a closer look at their finances to determine whether they can still afford a home while keeping up with student loan payments. Factors such as current income, expenses, credit scores, and debt-to-income ratios should all be carefully considered. Carlton suggests that the forthcoming changes in income-driven student loan payments under the Saving on a Valuable Education (SAVE) program may help some borrowers improve their debt-to-income ratios, potentially making homeownership more attainable. However, he emphasizes the importance of understanding the new repayment structure and being prepared to manage monthly payments effectively during this transition.

The Impact on Home Prices

Despite concerns about the resumption of student loan payments, Kurt Carlton believes that this event will have only a minimal impact on home prices. He points to the strong demand from demographics not burdened by student loans. While some of the 43 million Americans with student loans may face financial challenges, there are over 200 million adults who are entirely free from this debt. Carlton states that the current demand for real estate transactions should be easily met. However, he acknowledges the concerns about the younger generation's ability to leverage homeownership for wealth-building, particularly those with degrees that do not lead to higher earnings. These individuals may face pricing challenges in certain markets or opt for more affordable housing options, such as renting.

Changing Homebuyer Demographics

With the end of the student loan payment pause, Carlton predicts a potential shift in homebuyer demographics. He suggests that we may see an increase in the proportion of older buyers entering the market. The surge of first-time buyers, which has grown from 37% in 2021 to a substantial 50% today, may face challenges if rising costs edge them out. A mere $500 change in loan payments can make a significant difference in their eligibility for homeownership. Consequently, there might be a trend toward homeownership returning to an older demographic.

In conclusion, the resumption of student loan payments is poised to bring about changes in the US housing market, affecting current homeowners, prospective buyers, and potentially altering homebuyer demographics. While the housing market's overall stability may remain strong, individuals burdened by student loans must carefully assess their financial situation and adapt to these changes effectively. The journey ahead may require thoughtful financial planning and informed decision-making in the face of evolving economic dynamics.