Student Debt Woes

Stephen Cameron -

Here's my take for this week: Forgiving student loans won't make it any easier for those borrowers to buy homes.

Will the student loan forgiveness have any effect on homeownership? 👀

I’ve been hearing quite a bit of chatter around the timing of Biden's announcement coming so close to the midterm elections. Friends have expressed to me serious doubt as to whether this will play out “as advertised” for borrowers. TBD on all that, I guess…

But none of that political stuff is what I’ve been thinking about… If this all shakes out to put an extra $100-$500 a month back into the pockets of would be homebuyers, that would mean some are able to finally make that sweet DTI (debt to income ratio) to be able to purchase a first home, right?

I would have said “strong yes” a few years ago. Not anymore.

I’m not doing any Harvard math here. Let’s say the average borrower would have been in a position, a year ago, to buy a home IF they could’ve shaved a cool $10k off their student loans… That would have netted a few hundred dollars in extra monthly cash flow; great!

But forgiving student loans is no longer meaningful when it comes to home affordability if other factors have basically negated any benefits you would have from the extra greenbacks you stand to keep.

Here’s the two reasons why I don’t think we’re going to see any surge in new home purchases from all this student loan stuff…

  1. Mortgage interest rates are just not going back to 2019 levels any time soon. Even the early summer demand for home loans was at a 22 year low. (I don’t see any over-correction incoming)
  2. Inflation has already eaten up the value of that monthly student loan payment, and then some! I bought some (organic) chicken at the store last week. $17/lb. Buying chickens may soon have a higher ROI than real estate.

Combine those two factors with the “cooling off” of the housing market in general we are all witnessing, and I just don’t see it. Too little too late, in my opinion.

If you want to go deeper (way deeper) on home-ownership trends, I really enjoyed this recent article by Richard Houck called The Fading Memory of American Homeownership.