Is student debt preventing 414,000 home sales?

New study estimates that some 414,000 home purchases won't happen this year because potential buyers are carrying so much student debt. Student loans have surged from about $300 billion in 2004 to some $1.1 trillion a decade later.

The housing market recovery might be stronger but for this: Student debts are a sizable burden on young families – the people who typically make up the important category called “first time homebuyers.”

By one new estimate, some 400,000 home sales may not happen this year because those college loans hold back potential buyers.

“Our conclusion is that 414,000 transactions will be lost in 2014 due to student debt. At a typical price of $200,000, that is $83 billion per year in lost volume,” concludes the analysis by John Burns Real Estate Consulting in Irvine, Calif.

The housing market is still trudging along – at a pace of around 5.26 million sales this year of new and previously owned homes.

But the impact of student loans – whether or not the 414,000 estimate is precisely right – has become a much more important feature in the landscape of household finances.

Where other forms of debt have been relatively stable or even declining, student loans have surged from about $300 billion in 2004 to some $1.1 trillion a decade later.

What’s happening is that even as the cost of higher education has soared, young Americans have decided that college and advanced degrees remain a good investment – even or perhaps especially in the weak post-recession job market. 

In many cases, the calculation to take on student debt is indeed a wise choice. Assuming it leads to a solid career, the borrowing pays off in higher earnings over the long run. But in the process, it makes buying a home harder.

Some 29 million of the 86 million people aged 20 to 39 have some student debt, which translates to about 17 million households, reports Rick Palacios, director of research at Burns, and his colleagues.

For nearly 6 million of those households, student debt payments exceed $250 per month, undercutting what they might otherwise be able to spend on a home.

The presence of student debt doesn’t mean that no young couples can buy homes.

Another recent analysis, by the firm RealtyTrac in Irvine, found that in the vast majority of US metro areas, a median-priced home is affordable to a median income earner, even if the person owes student-debt payments.

Still, like the Burns report, Realty Trac concluded that college debts are a barrier for first-time buyers. Many young graduates don’t make the median income. RealtyTrac estimated that, on average, recent graduates with student loans need to earn 34 percent more ($8,969 more) than recent graduates without student loans to be able to afford a median-price home.

The point isn’t that a home would have been a better way to go into debt. In general, improving one’s own “human capital” has much better payback than buying a home to live in. Home values can swing up or down, but often grow roughly on par with inflation.