At this time of year, the term “Bubble Watch” usually refers to the college basketball teams at risk of making the NCAA tournament in a few weeks.
But because this is Wall Street Daily, not ESPN, here the term refers to a serious and ever-expanding debt bubble.
Lo and behold… I’m actually not referring to the gargantuan U.S. budget deficit, or the litany of crippling debts in Europe.
I’m talking about another debt issue that has slithered somewhat under the radar, but is nevertheless troubling. Especially since it notched a dubious “honor” in 2011…
The Kids Aren’t Alright
Student loan organization, FinAid.org, breaks the bad news…
2011 was the first year ever in which student loan debt surpassed credit card debt.
In the final quarter of last year, the total amount of U.S. student debt hit an eye-popping $867 billion, according to the Federal Reserve Bank of New York. The figure, which includes both government loans and private funding, was up $2 billion from the third quarter.
On average, four-year graduates are now staggering away from college clutching both their degree certificates and $25,250 worth of debt – up 5% since 2009.
Quoted in Bloomberg, it’s a trend that the National Association of Consumer Bankruptcy Attorneys calls a “student loan debt bomb.” And it’s no surprise that this debt burden is trickling down to other areas of the economy…
No Job, No House… And a Boatload of Debt
There are two related economic factors that the newly graduated meet…
First, they face immediate employment headwinds. Yes, the breeze isn’t quite as stiff these days, given that the jobless rate has dropped to 8.3%, compared with 9.1% in August 2011. But dig deeper than the headline-grabbing overall figure and you’ll see that the unemployment rate for those aged 25 to 34 – the typical age group for college departures – still hovers at 9%.
The New Case Against Hillary!
According to the mainstream media, we should all have voted for “crooked” Hillary.
But if she was the president, you would never have this chance to turn a small stake of $100 into a small fortune.
Sure, Trump is not perfect.
But even if you didn’t vote for him…
Once you see this video, you might like him a little more.
Second, it’s harder for college grads to hop onto the housing ladder while saddled with debt. Yes, home prices may be at their most affordable level in decades. But in this era of much tighter lending and credit restrictions, it’s a moot point if the bank or mortgage company turns graduates away because their debtload is too high.
Case in point: The Federal Reserve says a paltry 9% of Americans qualified for a first-time mortgage between 2009 and 2011 – down from 17% a decade earlier.
So it’s hardly surprising that the National Association of Realtors says the 25-34-year old age group accounted for 27% of all homebuyers in 2011 – the lowest percentage in 10 years and down from the 33% seen in 2001.
Why is this trend significant? Because first-time buyers represent the all-important springboard for the rest of the housing market. If they don’t move into “starter homes,” existing, older homeowners can’t climb further up the housing ladder – namely, into more expensive homes.
Instead, these would-be first-time buyers are choosing to rent. According to U.S. Census Bureau data, the number of rented households has grown by almost 700,000 a year since the real estate market peaked in 2006. At the same time, the number of homes owned has dropped by over 200,000 per year, despite the fact that home prices have slumped by one-third nationally since that time.
The irony is that with college tuition fees and student debt heading ever higher, the money spent to “get ahead” in life is actually putting many Americans farther behind and acting as a real drag on the U.S. economy.