Impact of Student Debt on Future Housing Demand

By Selma Hepp, Ph.D., Senior Economist California Association of REALTORS®, Research and Economics

At May’s midyear legislative meetings held by the National Association of Realtors in Washington, DC, a panel of experts in a session titled “Shifting Demographics and Housing Choice: A Whole New World?” discussed future housing market demand and trends to keep in mind as we think about the future of housing in the U.S.

The biggest takeaway was that baby boomers will increasingly contribute to housing supply as they age, yet echo boomers are in a difficult position to absorb the inventory.  The echo boomers, also called Millennials, are those currently ages 17 to 31, and account for 62 million people. And although future housing demand highly dependents on different rates of household formation among Echo Boomers, this generation is in a precarious position.

In addition to having seen the worst housing downturn, these younger buyers have been hit hard by the recession. Faced with an uncertain job market, no real income growth, tighter mortgage lending rules, and mounting student and credit card debt, it is no surprise that some of them do not put priority on homeownership.


The concern over student debt is particularly alarming. According to a number of recent research studies, college seniors who graduated with student loans each owed an average of $25,250, up significantly from an average of $12,750 in 1996. Parents have accumulated student debt as well, $34,000 on average. The aggregate amount of student loan debt in the U.S. is over $1 trillion currently. The pace at which debt is mounting adds to the concern. Between March 31, of this year and 2011, student loan debt rose by $64 billion. However, over the same period, all other forms of household debt fell by $383 billion. Put another way, since the peak in household debt in the third quarter of 2008, student loan debt has increased by $293 billion, while other forms of debt fell by $1.53 trillion.

The rise in student debt is attributable to rising cost of education. Since 1978, the cost of tuition in the U.S. has increased more than 900 percent, 650 points above inflation. Between1990 and 2010 alone, tuition rose by 116 percent while the median household incomes inched a mere 2.1 percent.

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