Well-Heeled Student Loan Borrowers Are the Most Cautious Home Buyers
NEW YORK ( MainStreet) The New York Fed's April study found that 30-year-olds with no history of student loans are more likely to have home secured debtthe benchmark used to track home ownershipthan those current and former student loan debtors. The Fed noted that student loans have led borrowers to delay landmark events, such as buying a car, getting married, having kids and purchasing a home.
But when it comes to a correlation between student loans and a delay in home buying, one think tank found that this was disproportionately true for higher earners rather than their lower earning counterparts. Could greater financial literacy be the cause?
NerdWallet, a San Francisco-based personal finance Website that tracks consumer credit products, released a study last week that examines student loans and their impact on home ownership and found that those with the most resources were exercising the most caution.
"In our survey, we found that higher income respondents were more likely to delay home ownership than lower income people with the same levels of student debt." said Shiyan Koh, vice president of personal finance management at NerdWallet.
NerdWallet teamed up Benjamin Ho , assistant professor of economics at Vassar College along with Student Loan Hero and SmarterBucks. The study consisted of 2,616 student loan holders in the 30 to 34 year old age range.
The primary variable was the relationship between the respondent's monthly debt payments and how he or she responded to questions about how whether student loan debt caused them to delay buying a home. "We call this variable debt-consciousness," said Koh. It is intended to gauge future behavior, not the inclination to borrow.
This heightened "debt-consciousness" is also seen in respondents whose parents owned their houses rather than rented.
If people who took the plunge on ARMs, interest-only mortgages and liar loans based on "stated income" had a low debt consciousness, NerdWallet's risk-averse cohort seems less susceptible to speculative markets where rising prices leads to panic buying, a hallmark of the last real estate bubbleand perhaps the next.
The study also examined the influence of student loans on home-buying decisions by gender. Greater financial literacy causes women to delay home buying more often than men. "The more financially literate men in our sample were largely unresponsive to student debt-consciousness," said Koh.
As student debt levels continue to rise, Koh predicted that "we will see a follow-on impact in the housing markets that won't be affected by traditional levers like interest rate policy and credit underwriting standards." She added that the NerdWallet study did not make a distinction between participants who are single and married. "We don't have an insight into how different preferences between men and women would impact a joint home buying decision."