Student-Loan Debt Near $1 Trillion; Stocks Rally

Its bad enough that people are piling on college loan debt like there is no tomorrow which is compounded by the inability to find a job that pays wells let alone in your field of study.  But with any debt it strips away your options and you loose your financial flexibility.[February 16, 2012 Student Loan Debt Bomb]


With younger people graduating with an average debt load of $25,000 it not just a drag on their own personal finances but the economy in general.  High debt loads limit the ability for people to qualify for mortgages even if they are fortunate to find a solid paying job.According to the National Association of Realtors, people age 25 to 34 made up 27% of all home buyers in 2011 which was the lowest level in the last decade and compares to 33% in 2001.


If you follow or read Barrons on a weekly basis you may have seen their weekly cover story Ready to Rebound calling a new housing bottom.  From what I understand they basically made the same call about 4 years ago, obviously that call didn't turn out so well.  I'm still a firm believer that the housing recovery will continue to muddle along while it finds a bottom.  I have no idea how long this may take but I continue to look and read data that says that there are a material amount of foreclosures that have yet to hit the market.  We have played in rebound in housing through Lowe's options calls based on a turn around in home improvement and turning properties into rentals see [February 26, 2012 Investing in-Foreclosures]


From Bloomberg comes some additional details on student loan debt and the drag 

• Outstanding education debt surpassed credit-card debt last year for the first time, according to Mark Kantrowitz, publisher of FinAid.org, a student loan website.  
• As outstanding student debt approaches $1 trillion, it’s one more reason record-low interest rates aren’t doing more to boost housing. The tighter lending standards that have emerged in the wake of the recession weigh particularly on younger, first-time home buyers, according to a Federal Reserve study sent to Congress on Jan. 4. These households tend to be younger, often have relatively new credit profiles, lower-than-average credit scores and fewer economic resources to make a large down payment, the report said. 
• “Potential first-time homebuyers have been disproportionately affected by the very tight conditions in mortgage markets,” Federal Reserve Chairman Ben S. Bernanke said at a homebuilders conference last week. “First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly.” 
• “Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” John Rao, vice president of the NACBA, said on a conference call. 

 

• “Students coming out of college are burdened with more debt than traditionally they have been, and they are also coming into an economy that is underperforming previous recoveries,” said Rick Palacios, a senior analyst at John Burns Real Estate Consulting LLC in Irvine, California. “These things pile on each other and tell us it’s not going to help the housing recovery right now.” 
• “Homeowners who are underwater on their mortgages cannot tap home equity to pay for emergency health expenses or their children’s college educations,” Bernanke said last week. 
• People age 25 to 34 accounted for 52 percent of first-time buyers last year, near the average since 2005, according to the Realtors group. Still, almost 6 million Americans in that group were living with their parents in 2011, up from 4.7 million when the recession began in 2007, according to Census data.