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- Mortgage rates, home prices, and student debt are a threat to housing affordability in 2023.
- Student-loan repayments will restart on October 1 following a three and a half year hiatus.
- The average borrower deferred around $15,000 in payments, but inflation affected how far funds went.
High home prices and mortgages may keep many would-be home buyers from purchasing homes in 2023 — but it's not the only thing holding them back.
After more than three and a half years of moratoriums on student loans, repayments are set to resume on October 1. For many Americans, especially Gen Z and millennials, this could make homeownership even more elusive.
The average student loan borrower has more than $37,000 in federal student-loan debt, according to Bankrate. With mortgage rates surpassing 7% and home prices nearing record levels alongside still-high inflation, the return of student-loan payments may solidify homeownership as a pipe dream for many young would-be buyers.
Manny Garcia, a senior population scientist at Zillow, told Insider that student-loan repayments will likely jeopardize buyers' ability to afford home purchases this year.
"Student loans make that upfront down payment more of a challenge when buying a home," he said. "We also know that half of renters and 39% of buyers said that having student-loan debt led them to delay buying a home," Garcia said of a 2019 Zillow survey.
Insider previously reported that 58% of housing experts polled in a study conducted by Pulsenomics said they believe that the reinstatement of student-loan payments could severely influence mortgage affordability. Additionally, 35% of experts believe it could also significantly impact the US homeownership rate.
The pause in student-loan repayments allowed the average borrower to defer just under $15,000 in student loans, Zillow found — funds that could have been allocated for a roughly 5% down payment for an entry-level house in 29 of the 50 largest markets, Will Lemke, Zillow's corporate communications manager, told Insider. But those funds were often diverted elsewhere.
"This could be a huge shock to their budgets," Stephanie Hall, the acting senior director of higher education policy at the Center for American Progress, previously told Insider. "Before the pandemic, borrowers were already choosing between meeting their own basic needs and making their student-loan payments. But the pandemic pause has gone on for so long that household budgets really changed during the past three years."
"Maybe before the pause, they couldn't get a mortgage and now they have one, or they took on other forms of personal debt, and then inflation has also impacted how far our budget can stretch, too," Hall added. "So I think all of those factors on top of now turning the student-loan system back on and having this additional bill come to you monthly is going to make a great deal of folks have to make some difficult choices in their budgets."
Some student-loan borrowers were able to secure a mortgage during the pandemic. According to credit-reporting agency TransUnion, around 15% of consumers with student loans took out new mortgages during the pandemic, with more than half of consumers adding bank credit-card debt in that time, the Wall Street Journal reported.
In a year where prospective homeowners are grappling with an array of challenges financially, down payments are getting smaller. According to Zillow's 2023 Consumer Housing Trends Report, 56% of prospective mortgage buyers said they planned to put down less than 20% on the home they intend to buy in 2023, with the median planning to put down between 10% and 19% of the final purchase price. 52% of successful buyers put down 20% or more.
The US homeownership rate and Americans' ability to pay up is already slipping. Since the second quarter of 2020, the homeownership rate has slipped from 67.9% to 65.9%, according to Fed data sourced by Insider, and delinquencies at 30 large mortgage servicers rose 3.16% in the second quarter, according to an analysis from Inside Mortgage Finance.