In 2023, high home prices and soaring mortgage rates have already made the prospect of homeownership daunting for many Americans.
However, another significant hurdle is set to emerge as a major roadblock: the resumption of student loan repayments on October 1.
This development could further distance a substantial portion of Gen Z and millennials from their homeownership aspirations.
Bankrate reports that the average student loan borrower carries over $37,000 in federal student loan debt.
With mortgage rates surpassing 7% and home prices reaching record levels, compounded by persistent inflation, the resurgence of student-loan payments threatens to solidify homeownership as an unattainable dream for young potential buyers.
Manny Garcia, a senior population scientist at Zillow, emphasized that student-loan repayments are likely to jeopardize the ability of buyers to afford homes this year.
He noted that “student loans make that upfront down payment more of a challenge when buying a home” and cited a 2019 Zillow survey, which revealed that half of renters and 39% of buyers delayed purchasing a home due to student loan debt.
A study conducted by Pulsenomics found that 58% of housing experts believe the reinstatement of student loan payments could severely impact mortgage affordability, and 35% of experts think it could significantly affect the US homeownership rate.
Zillow’s research highlights that the pause in student loan repayments allowed the average borrower to defer just under $15,000 in student loans.
These funds could have been used for a 5% down payment for an entry-level house in 29 of the 50 largest markets.
Student Loan Resumptions Pose Homebuyer Financial Challenge
However, these funds were often redirected elsewhere, leaving many potential homebuyers needing more preparation for the upcoming student loan obligations.
Stephanie Hall, the acting senior director of higher education policy at the Center for American Progress, warned that the lengthy pause in repayments led to significant shifts in household budgets.
Borrowers already balancing their basic needs with student loan payments now face added financial burdens.
Hall pointed out that some individuals may have obtained mortgages during the pandemic or taken on other personal debts, complicating their budgetary decisions.
As prospective homeowners grapple with various financial challenges in 2023, the size of down payments is shrinking.
Zillow’s Consumer Housing Trends Report for 2023 reveals that 56% of prospective mortgage buyers plan to put down less than 20% on their intended home purchase, with the median down payment falling between 10% and 19% of the final purchase price. In contrast, 52% of successful buyers put down 20% or more.
Moreover, homeownership rates in the US have declined since the second quarter of 2020, dropping from 67.9% to 65.9%, according to Federal Reserve data.
Delinquencies at 30 large mortgage servicers also rose by 3.16% in the second quarter of 2023, highlighting the growing financial challenges in the housing market.
In this complex financial landscape, the resumption of student loan repayments poses an additional hurdle for potential homebuyers, making the path to homeownership even more challenging and uncertain.
Source: Business Insider