The link between high levels of student loan debt and a moribund housing recovery has been the subject of discussion for some time, as a dearth of first-time homebuyers push homeownership rates down to the lowest level in almost 20 years.

Now, John Burns Real Estate Consulting has alerted its clientele to a dismal reality: Student debt will cost the housing industry approximately $83 billion in sales in 2014. With college debt increasing by about 6% every year, there is every reason to believe this trend will continue, and probably worsen. 

Mortgages: Debt matters more than ever
The number-crunching involved in the analysis puts some real heft behind the argument that student debt is holding housing back. The report estimates that heavy college debt will reduce real estate sales by 8% for this year, and that households that pay $750 or more for college loan debt each month are priced out of the housing market entirely.

This makes sense, particularly with the new emphasis on debt-to-income ratios baked into the new qualified mortgage rules. A recent analysis from The Wall Street Journal, using information provided by mortgage lender, highlighted this issue. When parsing mortgage applications of those with student loan debt, approved borrowers had monthly college loan payments of about $300. Mortgage applicants paying nearly $500 per month, however, were usually denied.

This situation is a recent phenomenon that grew out of mortgage rules instituted in January of this year, meaning there is little chance that the situation will improve in the future.

A domino effect
The most discouraging aspect for the housing market is that those with the highest student debt burden are the millennials, those aged 18 to 34 years -- an age group that encompasses the bulk of the first-time homebuyer market. The John Burns report notes that 35% of households younger than age 40 pay more than $250 per month on student loans, compared with 22% in 2005. Each $250 paid toward student debt reduces the amount these households can borrow for a home by a minimum of $44,000.

The lack of first-time buyers is hurting the housing recovery in other ways, too. With fewer buyers for lower-priced starter homes, midmarket households looking to trade up to a more expensive residence are stymied. While higher prices and constrained inventories likely affected the ability of younger buyers to purchase a home, student debt played a part, as well. Only 22% of 30-year-olds with student debt also held a mortgage in 2013, down from nearly 34% just five years ago.

Is housing doomed? Some analysts say the market will pick up in coming years as the economy improves and wages rise for college graduates. Millennials themselves are expressing more interest in owning a home someday, with 65% recently agreeing that homeownership embodies the American Dream. But with interest rates on the rise and student loan debt escalating, many will continue to find that dream unattainable.