College Costs and the Housing Market

Written By:
Ingo Winzer, President

Local Market Monitor
 

If you just took out a home equity loan to fund your daughter's college education, would you be in the housing market anytime soon, either buying or selling?

 

If you just graduated from college with $30,000 of debt, would you be saving up to buy a home anytime soon? How about if you graduated from law school but now owed $100,000?

 

College costs and the government loan programs that have aided and abetted what amounts to an extortion racket will dampen the housing market for a generation. To get a good job you need a degree, so colleges have raised prices with impunity. Can't afford it, kid? Go borrow from your Uncle Sam. No wonder college expenses have soared far above what's needed to provide a decent education.

 

Unlike the health care system, where payers like insurance companies and Medicare act as a brake on costs, the college education system has no brakes at all. $100 billion is added every year to an outstanding student debt level of $1 trillion. If nothing is done, this monster will wreck the housing industry.

National Economic Outlook

Written By:
Ingo Winzer, President

Local Market Monitor
 

The economic recession only lasted a year, but there wasn't a recovery for homes because prices had climbed much too high and builders had built way too many of them. Prices had to fall, not just back to a "normal" level, but to an even lower level so that the large inventory of excess homes could be moved - a sort of clearance sale. We're not yet done with that sale - see the large number of mortgages still delinquent - but enough has been cleared out so that prices can drift up to a more normal level.

 

The accuracy of home price statistics is questionable right now, because of the large number of foreclosure sales, but the overall situation is clear. Prices are up in 42 percent of the 315 markets we cover, falling in just 9 percent. A year ago, prices were up in 14 percent of our markets, still falling in almost half. The corner has definitely been turned.

How quickly this housing recovery will proceed is still not clear, however, because of the tenuous finances of homeowners - whose $500 billion of equity loans keeps them out of the housing market - and the slow pace of job growth that deters new home buyers.

The number of jobs in May was up 1.6 percent over last year. Jobs were up 0.4 percent in manufacturing, 1.7 percent in retail, 1.9 percent in health care, 3.3 percent in restaurants, and 3.6 percent in business services. Government jobs were down 0.3 percent because of big cuts at the federal level.

 About 45 percent of the 2.1 million new jobs created in the past year are in fields like retail, restaurants and health care that pay low wages. (The overall percent of low-paying new jobs is much higher.) The people who have these job will not be buying a house, they will be renting. We are in for a long period where renting is the preferred option of new job holders.