Monday, May 21, 2012

Will The Student Debt Burden Depress The US Housing Market For The Foreseeable Future?

There is every reason to believe so.  On the one hand, after years of mortgages being granted without down payments, those have been reimposed along with much stricter standards regarding analysis of credit worthiness of mortgage borrowers in the wake of the collapse of the housing bubble.  However, the student debt burden has now reached a record high in excess of $1 trillion total, with many recent grads unable to get jobs that will allow them to begin dealing with their accumulated burdens in a serious way, and even some of their parents and grandparents burdened with paying these.  These burdens are especially great for the most recent grads, who are very unlikely to be able to buy houses for the foreseeable future.

It is worth noting how alone the US is in having this level student debt burden.  It is clearly the result of our having by far the highest levels of tuition of any country in the world, substantially driven in more recent years by major cutbacks in state aid in for public colleges and universities.  In many nations college education remains free, and in most others the tuitions are all but nominal.  The small number with more substantial tuitions includes Austria, Netherlands, Chile, South Africa, and especially Canada, the only one that approaches the US level at all.  Canada does have a student debt problem, but it comes nowhere near that of the US, with current aggregate student debt amounting to $20 billion.  Yes, Canada is only about a tenth of the US size in population, but that still leaves the per capita student debt burden there at less than a quarter of that in the US. 

So, the US has a uniquely substantial drag around its younger population that will make large portions of its younger population unable to buy homes for a long time to come.  Forget any serious "recovery" of housing prices anywhere in the US anytime soon.

2 comments:

Brenda Rosser said...

In Australia tertiary students acquire a a debt for their studies through the Higher Education Contribution scheme (HECS). They've changed the name to 'HELP' (and I don't know what the 'L' and the 'P' stand for.

Australian student debt is significant, but not as high as in the US. One member of my family has a $16,000 debt, which I think is well and truly at the lower end of the scale. When annual income reaches $22,000 (?) or higher contributions are automatically taken out of weekly pay.

It's a good way for the government to reduce its expenditure on tertiary education and, as you note, reduce longer term consumption levels.

Of course, lower consumption is further increased by the ever-lowering rate of pay for uni graduates and ever-worsening availability of permanent employment.

Perhaps this is not inappropriate when many energy economists are declaring our time as one of peak oil production (and peak oil consumption) globally* (*not in per capita terms but as a whole, per capita energy being declared as having peaked in 1979).

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