Student Loan Debt Looming as Affordability Constraints Stretch Further

Thursday, July 13, 2023 by Alan Ratner

Filed under: affordability homeownership millennials mortgage rates student debt

Given a combination of the recent increase in mortgage rates and a reacceleration in home prices over the last three months, the current P&I payment on an average new home stands at roughly $3,000 per month – up nearly 70% from two years ago and 25% above trend line. If we assume a 100 basis point interest rate buydown (a popular incentive currently being offered by many homebuilders), this would reduce the payment by approximately $300 per month.

Looking forward, several of our homebuilding contacts have voiced concerns surrounding the affordability impact of the upcoming resumption of federal student loan payments on October 1st. While these payments have been incorporated into mortgage underwriting during the deferral period, they obviously have not been paid by consumers since 2Q20, providing a significant affordability tailwind over this time frame.

As of 2Q23, 44 million borrowers had student loan debt that will resume payments in October. The aggregate federal loan balance outstanding currently stands at $1.64 trillion, representing an average of $37,000 per borrower. We estimate this amounts to average monthly payments of $400-500, more than offsetting the benefit of mortgage rate buydowns from a cash flow perspective for those borrowers with student loans. According to data from the Federal Student Aid Portfolio, 34% of 18-29 year olds have some student loan balance, followed by 22% of 30-44 year olds, 7% of 45-59 year olds and just 1% of 60-plus year olds.

Student Loan Debt Looming as Affordability Constraints Stretch Further

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