NAR: New Condo Rules May Help Student Debt Challenge

Many young adults struggle to become homeowners, with the student-debt burden delaying, in part, their ability to buy.

WASHINGTON – May 12, 2016 – Many young adults struggle to become homeowners, with the student-debt burden delaying, in part, their ability to buy, according to speakers at a regulatory issues forum on student debt and homeownership at the 2016 Realtors® Legislative Meetings & Trade Expo going on this week in Washington, D.C.

U.S. Housing and Urban Development (HUD) Secretary Julián Castro led the session on student loan debt and its impact on first-time buyers. During his remarks, Castro announced that some regulatory changes were coming soon for young men and women, many of whom are currently repaying loans they borrowed to earn a college degree.

Castro said the prescription to the American Dream has always been working hard, saving money and investing in yourself, often by getting a great education. What has changed in recent times: The third step – getting a great education – is more expensive than ever.

Castro highlighted a change in condo financing could have an outsized effect on Florida due to state's high number of condos.

Castro noted that the Federal Housing Administration (FHA) announced changes to condo rules last November that address a complex recertification process, owner-occupancy requirements, and limits on the types of property insurance that FHA considers acceptable coverage. According to Castro, the proposed condo rule has left the HUD building and is at the Office of Management and Budget for review.

"Today's exciting news about the big changes coming to condos are a long-fought win for Realtors, and we're eager to see it come to fruition," said NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida. "Realtors know that condos are an important option for buyers, especially for first-time buyers looking for affordable options in the marketplace."

"Realtors help make the dream of homeownership for so many Americans a reality, and HUD is committed to partnering with them to ensure that the hard-won progress we're seeing in our housing market continues to grow for many years to come," Castro concluded.

A panel discussion followed Castro's presentation, led by Rohit Chopra, a senior official at the U.S. Department of Education; Meta Brown, senior economist at the Federal Reserve Bank of New York; Jessica Lautz, NAR managing director of survey research; and Mabel Guzman, chairwoman of NAR's student loan debt work group.

The panel agreed that affordability concerns, inventory shortages and lifestyle factors such as marrying later and having to student loan debt, burden a segment of creditworthy buyers by making it difficult to save for a downpayment.

Chopra discusses some of the ways the Education Department is addressing student loan debt. He said income-based repayment options and holding student loan servicers more accountable during the repayment process would help. "We need to make sure the pillars of the American Dream of graduating from college and owning a home go together – and not compete with each other," he said.

Sharing research from the New York Fed, Brown explained how student debt has defied the current business cycle of the past 10 years. Non-mortgage debt balances, such as debt from auto loans and credit cards, declined immediately after the Great Recession, and have since either flatlined or rebounded slowly. Student debt balances, however, have been the exception and ballooned from about $300 billion at the end of 2004 to over $1.2 trillion debt today.

Brown concluded that high student debt is likely creating a growing share of young student borrowers who are retreating from the housing market and ultimately having to live with their parents.

Pointing to NAR survey data, Lautz said even with the numerous obstacles they face, millennials do make up the largest share of buyers among all generations, and over 90 percent of them currently renting have indicated a desire to become homeowners in the future.

"With home prices and rents on the rise, saving for the downpayment is a challenge for many would-be buyers," said Lautz. "Unfortunately, among other factors, repaying student debt is delaying a typical individuals' path to homeownership by roughly five years."

The final speaker, Guzman, said that in addition to Congress passing legislation that helps ease borrowers' debt burden, Realtors can play a big role by working with their young clients at the beginning stages of their housing needs, particularly during the leasing process when they're renting their first place.

"Realtors can be a resourceful advocate for their young clients repaying student debt by educating them about their housing options and pointing them to credible resources, such as the Consumer Financial Protection Bureau's information on student debt," said Guzman. "The urge to be a homeowner is not lost among young adults, and we can all work together early in the process to make sure they're able to buy when they're ready."

© 2016 Florida Realtors®. All rights reserved. Reprinted with permission.