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Housing market’s next obstacle: Student loan payments

Debt freeze’s end in October could hit already-hurt mortgage purchase applications

Housing Market’s Next Obstacle: Student Loan Payments
(Illustration by The Real Deal with Getty)

The upcoming return of student loan payments isn’t just unwelcome news for borrowers, but could also compound difficulties on the housing market.

Household formations and homeownership rates would be hampered significantly in the next year and possibly beyond as student debt payment forbearance ends in October after nearly four years, according to a survey of more than 100 real estate experts reported by Bloomberg.

Purchase applications for mortgages — already hovering around extremely low levels — could keep dropping, according to those polled by independent research firm Pulsenomics. More than three quarters of respondents said they believe the negative impact will last at least a year, while two-fifths said the pain will stretch at least three years.

Sizing up the number of student loan borrowers working the housing market is tricky. But approximately 30 million of those with student loan debt are between the ages of 25 and 49, likely homebuyers that will be challenged as a chunk of monthly paychecks gets earmarked for student debt.

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Borrowers nearly received a reprieve from President Joe Biden’s administration, which launched a plan to cancel up to $20,000 of federal student debt, only to see that idea laid to waste by the Supreme Court. The administration recently launched a new plan that may help eligible borrowers reduce their regular payments on federal student debt.

Resumed payments in October is yet another factor that could tighten the housing market for some. Rising mortgage rates, low inventory and high home prices remain critical factors in the quest for homeownership.

Mortgage rates are becoming particularly daunting, recently hitting a 23-year high. The average 30-year loan reached 7.31 percent last week, depressing buyer activity and spirits.

— Holden Walter-Warner

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first-time buyersHome SalesHousing Market