How medical and student debt is hurting housing

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Home prices have returned to prehousing bubble peaks, and in some cases even surpassed them. But higher-than-ever medical and student debt is robbing many homeowners from realizing the benefits, while keeping others away from the market, according to Zillow.

Over two-thirds of renters nationwide have debt, and a quarter of renters and homebuyers claim their debt caused them a denial on a rental agreement or mortgage, according to Zillow's Consumer Housing Trends report. About two-thirds of renters and 44% of those with medical debt claim they couldn't cover an unexpected $1,000 expense.

"When we focus on low unemployment and the strong economy, we often forget that in many ways the rising costs of life can erode most of those gains," Skylar Olsen, Zillow's director of economic research, said in a press release.

"Health care has never been more expensive. Getting a college degree, a path more likely to lead to economic success for those able to get through it, has never been more expensive. U.S. housing values and rents have never been more expensive. While incomes, both at the high and low end, are growing, the pace hasn't kept up with those crucial life expenses. That's fact and Americans are feeling it," Olsen continued.

While mortgage balances at credit unions continue to rise – with first mortgage balances growing nearly $70 billion between July 2017 and July 2019, according to the most recent Credit Union Trends Report from CUNA Mutual Group – growth in that space is slowing. The 12-month period ending July 2017 saw growth of more than 10%, but the latest data shows just a 7.1% increase. Moreover, those figures haven't been in double digits since the summer of 2018. On the other hand, second mortgage and HELOC balances at CUs are performing well, showing a 7.5% year-over-year lift at the end of July compared to 5.7% one year prior. Balances for that product stood at just under $94 billion at the end of July, a $12 billion increase from two years earlier.

When it comes to renters, about 39% of homebuyers and half of renters surveyed in the Zillow study report student debt delayed them from making a house purchase. And when the time comes to buy, the student debt limits how much they can put toward a down payment and affects monthly budgets for decades.

About two-thirds of house shoppers with any sort of debt put down less than 20% toward a mortgage. For shoppers specifically with student debt, the share putting down below 20% elevated to 76%.

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Housing affordability Purchase Real estate Housing market Home prices Down payments Purchasing power Student loan debt Zillow