The Commercial Inspector | The End of the Student Loan Pause and

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The End of the Student Loan Pause and Its Expected Impact on CRE

 July 19, 2023 |  Commercial Real Estate News, Property Investment |  real estate trends, business tips, save money, retail space, hotel, apartment

On October 1st, the student loan pause that stretched back to early 2020 will come to its climactic end, leaving many economic analysts as well as borrowers anxious about the future. An extra few hundred dollars of costs affecting the budgets of roughly 44 million Americans is sure to send ripples throughout many industries. And for commercial property investors, staying up to date on the latest speculation tends to have its value. Looking forward, here’s how the end to The Pause might impact a few key real estate sectors.

Forecasting the Effect on Multi-Family Properties
As we’ve discussed, property owners are getting creative with ways to add to multi-family property inventory as other sectors have been negatively impacted by inflation. While it’s true that most still consider multi-family properties a smart add to any investor’s portfolio, recent conversion strategies and new builds have prioritized higher-end units, which doesn’t balance well with student loan payment continuation.

Those impacted by student loans are likely to look for ways to save, which may mean downgrading their living situations by moving from Class-A locations to Class-B, or from Class-B to Class-C. Millennials and younger renters who have opted to rent alone may also choose to share costs by finding roommates or moving in with family. Depending on the demographics of your multi-family locations, a shuffle in tenants seems very possible with higher-end locations more likely to see an increase in vacancies.

Changes in Plans and Excess Spending
Borrowers are sure to either cut on spending for non-essentials or accrue additional debt, which means that retailers could be disproportionately affected. From clothing stores, to the hospitality sector (and travel industry), to car dealerships, excess spending is due to see a considerable decline as people learn to adjust to their budget. Marketers will look to emphasize the essential nature of their products and services as consumers are sure to take time reprioritizing their outgoing funds.

Larger purchases are also likely to take a hit as those looking to retire or pursue an advanced degree will instead wait until their finances are in order. While the overall impact on the economy as a whole should be negligible due to funds only being redistributed from these areas to loan repayments, low to medium income earners should feel the largest impact. This leads to the natural question of home ownership, and how the reinstatement of payments might limit those looking to make a transition from renter to owner.

Projected Impact on Residential Market
While this may be something of a surprise, the residential market is actually not very likely to be heavily impacted by student loan repayments. Inflation and high mortgage rates have already made homeownership a tall task for most younger prospective buyers, which means that most analysts agree, those that were avoiding purchasing a home during the student loan freeze likely weren’t in a position to buy anyway.

Inflation, mortgage rates, and overall availability all need to shift for residential sales to see a noticeable increase, it seems. As a spot of good news for renters, though, signs seem to be pointing towards a drop in rent prices in a few key cities, and some (like reporters at CNN) are seeing home prices lowering steadily. Given time to adapt, spending is likely to normalize again. For how long this adaptation will take, follow along as we watch the latest commercial real estate trends and news!

No real estate purchase is safe without a comprehensive inspection revealing insights on the condition of the property. To work with America’s premier name in commercial property inspections, contact NPI today!

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