Student Loans and the Housing Market

We doubt anyone was thinking about student loans a few months ago, except for those that have them. But, they have a looming effects on the housing market, already hit hard by high interest rates.

Why Student Loans will Affect the Market

Look back to the pandemic. Extreme measures were implemented to ease the economic suffering of so many people. In that regard, payments for federal student loans have been frozen.

And that is about to change. At the beginning of October the freeze ends and potential home buyers will see another bill coming their way.

A recent survey showed that the additional burden of the student loans will dissuade three fourths of potential young buyers from entering the market.

More than 75% of the survey respondents said that the payments will have a negative effect on homeownership that lasts for a year or more. About 40% predicted an even longer impact of at least three years.

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Affordability of Houses

The potential hit comes at an already precarious time for the housing market, thanks to the astronomic rise in mortgage rates over the past year. In fact, housing affordability is worse today than during the peak of the 2008 housing bubble.

The Atlanta Fed’s Housing Affordability Monitor, which compares median home prices and other housing costs with median household income, indicates the median U.S. household would have to spend about 43.2% of their income to afford the median-priced house as of June, according to the index. That is the highest share in data dating back to 2006.

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Student Loans and Effect on Housing Market

So, the question is if we are sitting on another bubble, or if the cooling of the housing market will level out income disparities.

Mortgage rates are higher than in decades.

The Effect on Housing Prices

Low inventory has kept pressure on the market. More buyers than sellers has led to rising home prices, as competition has led to many bidding over asking price. Because of the interest rates, more potential home sellers are staying in their current home at the historically low interest.

Higher mortgage payments have led to a massive amount of total income. As mentioned above, the average household would need to spend over 40% of their income to afford a house. Almost 40% of income is needed for the average home purchase.

The Effect on Inventory

Obviously, the fewer buyers will help to relieve the stress of the low inventory in the market. But, it remains to be seen how many houses will hit foreclosures. It is estimated that one quarter of home owners with outstanding student loans are at risk.

The average student loan payment is $200-$300 dollars per person, with some considerably higher than that, based on the school and the degree(s) the student has accrued. So, it is easy to see how an extra $600 a month bill, for a couple, will make home ownership harder to achieve.

The total outstanding balance on federal student loans sits at over ten billion dollars a month.

Still, in the end, it may not have a huge effect in the market.


Potential buyers get stressed. Home prices keep rising. More potential for foreclosures has real estate experts nervous.

It is yet to be seen exactly how this will affect the housing and pricing situation, but the ripples should start to be seen in the coming months.

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