Student-loan debt stifling young, first-time buyersby Tim Manni
- Strict lending conditions
- High down-payment requirements
- A weak and unstable job market
But according to an article recently published in Bloomberg, there’s another reason why younger Americans aren’t buying homes: student loan debt.
“As outstanding student debt approaches $1 trillion, it’s one more reason record-low interest rates aren’t doing more to boost housing,” wrote Bob Willis of Bloomberg. “The tighter lending standards that have emerged in the wake of the recession weigh particularly on younger, first-time home buyers, according to a Federal Reserve study sent to Congress on Jan. 4. These households tend to be younger, often have relatively new credit profiles, lower-than-average credit scores and fewer economic resources to make a large down payment, the report said.”
Should you lend to your child?
Some parents have recognized these stumbling blocks in the market and have offered to help their children buy homes. While some parents have simply decided to pledge a gift toward a down payment, others have gone full board and have agreed to become their child’s mortgage lender.
A recent article on HSH.com, titled “Is lending to your child worth the risk?” explains that parental lenders need to treat this arrangement as business as usual:
If you’re going to become your child’s mortgage lender, you should treat the arrangement first and foremost as a business deal. Mari Adam, president of Adam Financial Associates in Boca Raton, Fla., said with so much risk involved, you shouldn’t agree to anything on a handshake.
“Unless this is a gift, you need to treat your child like you would any other borrower,” says Adam. “You need to go through all the formalities and treat it as a business deal.”
Young buyers are on the decline
According to the National Association of Realtors, “37 percent of recent homebuyers were first-time buyers, a drop from 50 percent in 2010.” That’s the lowest figure since 2006.
While the current administration has unveiled program after program that targets homeowners (HARP, HARP 2.0, FHA streamline refinances), little has been done (besides the first-time homebuyer tax credit) to spur young people to buy.
Homebuying is a reflection of confidence if nothing else, confidence that employment will persist and home prices will appreciate. If many young Americans weren’t bogged down with debt, would they then return to homebuying in droves?
I’m not so sure. What do you say?