Loan applications for housing purchases fallen alarmingly in the U.S recently, a development which experts fear will negatively affect the housing recovery and the overall economy.
Mortgage applications saw a steady decline in February. The Mortgage Bankers Association reported that applications for the week ending February 14, 2014 had dropped by 4.1% from one week earlier, after falling 2% from the previous week. Mortgage originations dropped $97 billion to $452 billion from the third quarter to the fourth quarter of 2013, while student debt increased to $1.08 trillion, up $53 billion, a report prepared by the Federal Reserve Bank of New York stated. Average student debt per borrower in U.S. is nearly $24,810.
Rising student debt is preventing first time buyers from purchasing houses, leading to a fall in house loan applications.
“Student debt is likely to have a dampening effect on young peoples’ ability to borrow for a home, and that’s going to impact the housing market and the economy at large. It is a cause of concern for us,” said David H. Stevens, chief executive of the Mortgage Bankers Association.
Some federal rules enforced last month are also likely to have a bearing on the home loan qualification criteria. The rules discourage mortgage lenders from approving loans for people whose total monthly debt exceeds 43% of their monthly gross income, thus rendering many young adults unable to qualify for a mortgage.
The housing sector has been hit hard by a recent drop in housing starts due to harsh weather conditions. The number of house starts dipped 16% in January compared to December. It was 2% lower year-on-year to January. New home starts in January were at a seasonally adjusted annual rate of 880,000, below December’s revised estimate of 1,048,000. House permits – which indicate future construction of new residential buildings — also dipped by 5.4% in January compared to December.