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Why $83B worth of homes won’t sell this year that should have

What is holding the housing market back from selling 414,000 homes this year that under different circumstances would have sold?

money debt

According to a new study by John Burns Consulting, $83 billion in home sales, or 414,000 homes, won’t happen this year that otherwise could have, which equates to roughly eight percent loss in all home sales.

Talk about a missed opportunity.

The firm estimates that consumers’ high student loan debt is the obstacle to this $83B in sales, finding that for every $250 per month in student loan debt that consumers owed, their home purchasing power decreased by a whopping $44,000.

The study notes that there are over 5.9 million consumers under the age of 40 that are in that $250/mo bracket, packing quite a punch against the housing market.

Who is priced out of the market altogether?

So if $250 a month in repaying student loans has that much of an impact, what of those consumers who pay more? The report indicates that households repaying $750 per month or more toward student loans are completely priced out of the housing market.

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“We actually think it’s pretty conservative,” said Rick Palacios, director of research at John Burns Consulting, tells the LA Times. “We’re only looking at people age 20 to 40. We know there’s a big chunk of households over age 40 who have student debt, too.”

But wait, there are more challenges

On the heels of news that cash investors are retreating and potential borrowers have a better shot at getting financed, it must also be noted that mortgage lenders no longer have to approve loans for buyers with debt exceeding 43 percent of their monthly gross income.

Additionally, the Federal Housing Administration is proposing student debt be taken into account, with current rules allowing this debt to be excluded for debt deferred for over a year when a lender assesses loan eligibility.

In other words, it could get even more difficult for first-time buyers to enter the market.

It’s not all bad news, though, as NAR President, Steve Brown notes, “Realtors applaud the recent policy change to eliminate post-payment interest charges on FHA-insured single-family mortgages. The prepayment penalty placed an unfair and unreasonable burden on consumers who already face high housing and closing costs.”

The takeaway

Lending rules and student debt are undoubtedly holding back the housing market and keeping first time buyers out of the market. This research is simply the first to put a dollar amount on the missed opportunities – 414k missed transactions is nothing to scoff at.

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Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.


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