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
| Aug 11, 2010
More construction firms likely to perform stimulus-funded work in 2010 as funding expands beyond transportation programs
Stimulus funded infrastructure projects are saving and creating more direct construction jobs than initially estimated, according to a new analysis of federal data released today by the Associated General Contractors of America. The analysis also found that more contractors are likely to perform stimulus funded work this year as work starts on many of the non-transportation projects funded in the initial package.
Museums | Aug 11, 2010
Design guidelines for museums, archives, and art storage facilities
This column diagnoses the three most common moisture challenges with museums, archives, and art storage facilities and provides design guidance on how to avoid them.
| Aug 11, 2010
Broadway-style theater headed to Kentucky
One of Kentucky's largest performing arts venues should open in 2011—that's when construction is expected to wrap up on Eastern Kentucky University's Business & Technology Center for Performing Arts. The 93,000-sf Broadway-caliber theater will seat 2,000 audience members and have a 60×24-foot stage proscenium and a fly loft.
| Aug 11, 2010
Citizenship building in Texas targets LEED Silver
The Department of Homeland Security's new U.S. Citizenship and Immigration Services facility in Irving, Texas, was designed by 4240 Architecture and developed by JDL Castle Corporation. The focal point of the two-story, 56,000-sf building is the double-height, glass-walled Ceremony Room where new citizens take the oath.
| Aug 11, 2010
Carpenters' union helping build its own headquarters
The New England Regional Council of Carpenters headquarters in Dorchester, Mass., is taking shape within a 1940s industrial building. The Building Team of ADD Inc., RDK Engineers, Suffolk Construction, and the carpenters' Joint Apprenticeship Training Committee, is giving the old facility a modern makeover by converting the existing two-story structure into a three-story, 75,000-sf, LEED-certif...
| Aug 11, 2010
Utah research facility reflects Native American architecture
A $130 million research facility is being built at University of Utah's Salt Lake City campus. The James L. Sorenson Molecular Biotechnology Building—a USTAR Innovation Center—is being designed by the Atlanta office of Lord Aeck & Sargent, in association with Salt-Lake City-based Architectural Nexus.
| Aug 11, 2010
San Bernardino health center doubles in size
Temecula, Calif.-based EDGE was awarded the contract for California State University San Bernardino's health center renovation and expansion. The two-phase, $4 million project was designed by RSK Associates, San Francisco, and includes an 11,000-sf, tilt-up concrete expansion—which doubles the size of the facility—and site and infrastructure work.
| Aug 11, 2010
Goettsch Partners wins design competition for Soochow Securities HQ in China
Chicago-based Goettsch Partners has been selected to design the Soochow Securities Headquarters, the new office and stock exchange building for Soochow Securities Co. Ltd. The 21-story, 441,300-sf project includes 344,400 sf of office space, an 86,100-sf stock exchange, classrooms, and underground parking.
| Aug 11, 2010
New hospital expands Idaho healthcare options
Ascension Group Architects, Arlington, Texas, is designing a $150 million replacement hospital for Portneuf Medical Center in Pocatello, Idaho. An existing facility will be renovated as part of the project. The new six-story, 320-000-sf complex will house 187 beds, along with an intensive care unit, a cardiovascular care unit, pediatrics, psychiatry, surgical suites, rehabilitation clinic, and ...