The law of unintended consequences of bad government policy is alive and well in the housing market. With a sluggish economy (and more importantly a dismal jobs market for young Americans) first- time homebuyers are gradually being squeezed out of the marketplace.
Overall, the housing market is weak, as reflected in a study by the Mortgage Bankers Association that found that loan applications for home purchases have decreased 20% in the past four months over last year. Typically, early spring is prime time for mortgage applications as homebuyers get ready to take advantage of low interest rates and a depressed market with lower prices. Usually first-time homebuyers make up the bulk of the marketplace. Since last year, first-timers only made up about 1/3rd of the market, well below the historical norm.
This drop off has led to much speculation about why first -time homebuyers are out of the game. One explanation is high student debt – it has tripled in the past decade. And loan payments of $350 to $1,000 per month can push potential borrowers over the debt ratio to income edge into subprime categories – effectively killing their chance to get a loan at all.
The real culprit however is wage stagnation. The young have been hit the hardest with higher unemployment rates and inability to find career track jobs rather than dead-end, entry level jobs. Nearly 25% of young people aged 20-34 are still living at home (50% of 18 to 24 -year -olds are still at mom and pop’s house).
David H. Stevens, chief executive of the Mortgage Bankers Association pushed the student debt meme saying, “This is a huge issue for us. Student debt trumps all other consumer debt. It’s going to have an extraordinary dampening effect on young peoples’ ability to borrow for a home, and that’s going to impact the housing market and the economy at large.”
The reality is that student debt is a symptom, caused by years of government guaranteed loans, university mismanagement and subsidies which drive costs of university education to record levels. But focusing on student debt belies the real culprit –a stagnant economy hampered by the Obama administration’s failed economic policies.
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