David Rosenberg is doubtful.
In his latest Breakfast With Dave note, Rosenberg points to another financial bubble that's keeping homebuyers out of the market: student debt.
From his recent note:
STUDENT LOANS ? THE NEXT BUBBLE?
As the WSJ reports, the student default rate for loans taken on after October 2009 has jumped to 9.1% ? double what it was five years ago. The federal government now estimates that about 20% of students who took on federally-assisted credit will end up defaulting in their lifetime. According to Pew Research, fully 40% of households headed by someone younger than 35 is saddled with student debt, with the average liability rising 14% from 2007 to 2010 to nearly $27k (in real terms).
This is one reason why I remain cautious, for example, on consumer discretionary spending in general and housing in particular.? The first-time buyer is still basically a no-show ? the market has been driven by investor-based buying (to rent out) and pricing has been assisted by tightening inventories. But at some point, either the first-time buyer shows up or this housing recovery will sputter and the latest data show that only 30% of turnover activity is being driven by the traditional first-time, who is key in the demand food chain. But the student debt situation is delaying the decision to buy, and of course there is the other issue of deteriorating credit quality and access to funds with poor FICO scores in the future. The nature of the debt crisis continues to evolve ? the entire book is far from finished even if we have turned the corner on the initial chapter of residential mortgages. And don't forget ? the U.S. federal debt ceiling is due to emerge as front page news in the opening months of 2013. Stay tuned...it's not really that far off.
Here's a chart from Bank of America Merrill Lynch showing how student loans have far outpaced disposable incomes.
Bank of America Merrill Lynch |
For now, those young people staying out of the housing market will rent or just stay with their parents.? Check out this chart:
Bank of America Merrill Lynch |
SEE ALSO: DAVID ROSENBERG: The Housing Recovery Is Doubtful, And Even If It Is Real It Won't Help The Economy >
Source: http://www.businessinsider.com/rosenberg-student-loan-bubble-housing-2012-10
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