Student Loan Debt Delays Home Buying by Seven Years

Student Loan Debt Delays Home Buying by Seven Years:

A new study by the National Association of Realtors and the American Student Assistance shows that the weight of student debt can cause new home buyers to delay entering the housing market by seven years.


The U.S. currently has a student debt load of $1.4 trillion, which accounts for 10 percent of all outstanding debt and 35 percent of non-housing debt. The magnitude of the debt continues to grow in size and share of the overall debt in the economy. While this amount of debt has risen, the homeownership rate has fallen, and fallen more steeply among younger generations.
Student loan debt impacts other life decisions including employment, the state the debt holder lives in, life choices such as continuing education, starting a family, and retirement.
Twenty-two percent were delayed by at least two years in moving out of a family member’s home after college due to their student loans.
Among non-homeowners, 83 percent cite student loan debt as the factor delaying them from buying a home. This is most frequently the case due to the fact that the borrowers cannot save for a down payment because of their student debt. Among homeowners, 28 percent say student debt is impacting the ability to sell their existing home and move to a different home. The delay in buying a home among non-homeowners is seven years and three years for homeowners.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 3.50 MBS) lost -7 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher from the prior week.  We saw some “choppiness” on Wednesday which produced both the lowest and highest rates of the week with an intra-day swing of -37BPS.

Overview:  MBS were pushed into a very well-defined trading channel that was supported by our 100 day moving average (the purple line in the chart above) and was capped by our support level at our 50 day  moving average (the blue line in the chart above).  The biggest event/story of the week by far was the Fed meeting and their announcement that they would begin purchasing fewer Treasury Notes and  Agency Mortgage Backed Securities beginning in October.

The Talking Fed:
As widely expected, the Federal Reserve kept their key Fed Funding Rate at 1.00 to1.25% range.  And as widely expected, they gave us some information about their “Taper”.  What was not widely expected was that it would start in October instead of December/January and the vast majority of Federal Reserve members are telling the markets that they expect one more rate hike in December.

Guidance on rates:
As you can see from the famous Dot Plot Chart below,

The vast majority of the Fed is saying that they internally expect to see one more rate hike in 2017 and at least three rate hikes in 2018.  Both of which were not priced into the market before Wednesday and in fact are still not fully priced in yet, although the market is showing at least some higher odds of a rate hike in December.

 

Time to Taper:
They will begin to purchase fewer U.S. Treasury notes and longer term Agency MBS bonds beginning in October. You can read their official taper policy here
They will purchase $10B fewer notes and bonds for Oct, Nov and December 2017.
– of that $10B reduction.  $6B will be in U.S. Treasuries and $4B will be in MBS.
They will purchase $20B fewer notes and bonds (taking another $10B from their prior reduction) beginning in January 2018 and will continue through March 2018.  It will be $12B few Treasury Notes and $8B fewer MBS than at today’s levels.
This pattern will continue to reduce their asset purchase/reinvestments by additional $10B a month every quarter until it gets to a point where they have reduced it by $50B per month and then will continue at that level.
What to Watch Out For This Week: