Student Debt Curbs Potential New Homeowners
January 19, 2016
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The biggest damper on housing prices is something that I have discussed many times in the past. And that is the fact that many Millennials are saddled with student debt. The amount of this collective debt is more than $1.3 trillion. Obviously, this kind of financial obligation keeps many first-time buyers out of the housing market.

The problem is that these education loans create a debt-to-income ratio that is higher than is acceptable by conventional mortgage brokers. This causes problems in the underwriting and approval process.

Also, this debt can impact credit scores, especially if payments have been missed. Given our recent rocky economy, missing payments can’t be unexpected.

My heart goes out to these Millennials, because I have nieces and nephews and I understand how hard it can be to get started in life when saddled with this kind of obligation. They are truly between the proverbial rock and that really hard place.

Speaking of Debt …

Speaking of debt, I need to return to a recurring theme that refuses to stay under the carpet, no matter how often the politicians try to sweep it under!

We must constantly be aware of the impact of our US national debt on every aspect of our economy and its recovery. The current debt of the United States is $19 trillion at the Federal level — and growing daily.

Consider these two facts:

  • Since 2000 total spending by the US federal government has increased by 107%.
  • Since 2000 Gross Domestic Product (GDP) has increased by only 87%.

Economics 101 defines GDP as “the basic measure of the market value of all goods and services sold in an economy.”

Total spending will undoubtedly increase as our population demographics create further drag with an aging population.

Our job is to deal with the facts, accept that most of this is out of our control, and make what adjustments we can in our lives to control our own financial well-being.

We are now in an environment where interest rates are on an upward trend, which means America will have to spend even more on the interest it pays to its bond holders.

This is a double whammy.

Not only does the government have to pay more and more to service this outstanding debt, the money spent on this interest cannot be spent elsewhere. It cannot be spent on activities designed to encourage business growth, launch technological advancements, or build infrastructure, etc.

It is ironic when these are the very activities we need to fund in order to create jobs, which will create more tax payers, which will potentially lower the deficit.

This is a vicious and downward spiral. As things stand now, it is a losing battle.

The solution is a double whammy, too.

  • As I see it, the solution to increasing revenue is to get more people employed.
  • The solution to increasing our GDP is to generate products that people want to buy.

Both objectives can be accomplished by supporting business growth, injecting capital into developing technologies and rebuilding our cities. These are all areas that invite investors.

About author

Mike Lathingee

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