How will the Cancelation of College Debt Impact Housing?

Details may change, but as of now, people who make less than $125,000 annually and carry student debt will be eligible to have either up to $10,000 or ($20,000 for Pell Grant recipients) of college debt canceled. According to the White House, about 20 million people will have their college debt fully canceled. How will this relief impact housing? At first glance, it may not have any material short-term impact on housing. With an affordability problem in housing, the $10,000 or even $20,000 relief may only help some first-time homebuyers and potential move-up buyers who were previously unable to qualify.

The good news? The relief will help lower Debt to Income levels and provide more monthly cash flow. Coupled with housing inventory increasing in some parts of our country and price declines happening in many markets, people may have opportunities to claim homeownership.

The potentially bad news? There is speculation this relief could add to inflationary pressures which currently sit near 40-year highs. Inflation comes with too much money chasing too few goods, so adding billions of dollars to the economy could keep prices elevated. If this were to happen, any relief benefit could be eroded by inflation.

With the Federal Reserve Chair Jerome Powell recently saying they will raise rates to “restrictive” levels to slow the economy and remove the froth in housing, people receiving debt relief through canceled student loans may very well use the proceeds to lessen the cost burden of daily life.

Bottom line: This Executive Action to cancel student debt is evolving and the timing/details are subject to change. As it relates to housing, it may expose some opportunities for folks to take advantage, and people getting this relief should speak with their mortgage consultant to discuss loan options available.

Source: Mortgage Market Guide