Home buyers are optimistic about the housing market, but face financial challenges. Millennial buyers face tight credit, eroding affordability and high debt loads. Yet a recent study conducted by a real estate information company shows there are housing markets that are still affordable for recent grads saddled with student loan debt.
A report released by RealtyTrac found 96 percent of U.S. housing markets are still affordable for recent graduates making the median household income - even those with student loans. However, student loans are still a serious obstacle for recent graduates in terms of having the minimum income to buy a median-priced home.
The study indicates in 475 counties (96 percent), recent graduates making the median income and having the average student loan debt for the state could afford to buy a median-priced home. Based on the June 2014 the nationwide median home price of $187,000, the nationwide average student loan balance of $29,400, and the estimated nationwide median household income of $52,912, the study concludes recent graduates with student loans need to earn 34 percent more ($8,969) than those without student loans to be able to afford a median-priced home. The minimum household income needed to buy a median-priced home without student loans is $26,291 and rises to $35,259 for buyers with student loans.
Recent graduates with student loans needed to make up the biggest percentage in income to equal the buying power of those without student loans in the states of Michigan (55 percent), Ohio (53 percent), Pennsylvania (49 percent), Iowa (48 percent), and Alabama (47 percent). States where student loan debt had the least percentage impact on income needed to buy a median-priced home included California, where graduates with student loans need to earn 12 percent more than graduates without student loans; New York (17 percent); Virginia (17 percent); Massachusetts (18 percent); and Wyoming (19 percent).
Three of 12 counties that were considered unaffordable for recent graduates making the median income, even without student loans, were San Francisco, San Mateo and Marin. In the counties of San Diego, Sonoma, Monterey, San Luis Obispo, Yolo and Napa, having student loans means the difference between being able to afford to buy a home or not for recent graduates making the median household income.
"Millennials make up the largest generation since the baby boomers and comprise the next generation of home buyers. It's worrisome when we hear young buyers cannot afford to buy a home in the place where they grew up. This has been happening, especially here in the Bay Area, where prices have skyrocketed quite a bit and have negatively impacted affordability," said David Tonna, president of the Silicon Valley Association of REALTORS®.
For this study, RealtyTrac based median home price data from public records and average student loan debt data by state from The Institute for College Access & Success. The report examined 494 counties, each with a population of at least 100,000. Affordable for this analysis was considered up to a maximum 43 percent of income spent on house payments, including taxes and insurance, assuming a 20 percent down payment and a 30-year loan with a 4.13 percent fixed interest rate.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.