SOURCE: RealtyTrac

RealtyTrac

September 04, 2014 09:00 ET

96 Percent of U.S. Housing Markets Still Affordable for Recent Grads Saddled With Student Loan Debt

Grads With Loans Need 34 Percent More Income to Buy Median-Priced Home; Student Loans Biggest Hindrance to Affordability in MI, OH, PA, IA, AL

IRVINE, CA--(Marketwired - Sep 4, 2014) - RealtyTrac® (www.realtytrac.com), the nation's leading source for comprehensive housing data, today released a report analyzing the affordability of homeownership for recent college graduates, which found that 96 percent of U.S. housing markets are still affordable for recent graduates making the median household income -- even those with student loans.

Using median home price data collected from public records along with average student loan debt by state from The Institute for College Access & Success (www.ticas.org), the report examined the minimum amount of income needed to purchase a median priced home with and without student loans in 494 counties, each with a population of at least 100,000 and where sufficient data was available. 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. Affordable for this analysis was considered up to a maximum 43 percent of income spent on house payment (including taxes and insurance) assuming a 20 percent down payment and a 30-year loan with a 4.13 percent fixed interest rate.

"Contrary to much rampant speculation that student loan debt is holding back homeownership among recent graduates, we found that the vast majority of markets are affordable for recent graduates making the median household income -- even many of those recent graduates with student loans," said Daren Blomquist, vice president at RealtyTrac. "However, student loans still represent a significant handicap for recent graduates in terms of the minimum income needed to buy a median priced home. Nationwide, recent graduates with student loans need to earn 34 percent more ($8,969) than recent graduates without student loans to be able to afford a median-priced home."

Student loans biggest hindrance to affordability in Michigan, Ohio, Pennsylvania
States where recent graduates with student loans needed to make up the biggest percentage in income to equal the buying power of those without student loans were Michigan (55 percent), Ohio (53 percent), Pennsylvania (49 percent), Iowa (48 percent), and Alabama (47 percent).

Affordability for median-income earners was still good in all of these states, with the median household income comfortably above the minimum income needed to buy a median priced home -- even with student loan debt. But the average amount of student loan debt in these states was large relative to median home prices, resulting in a bigger percentage impact on home affordability.

States where student loan debt had the least percentage impact on income needed to buy a median priced home included California (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).

Debt or no debt, some markets are unaffordable
There were 12 counties of the 494 analyzed where students making the median income could not afford to buy a home, even without student loans

Some of the counties that were unaffordable for recent graduates making the median income even without student loans were led by San Francisco County, where the minimum income needed to buy a median-priced home without student loan debt was $63,301 less than the county's median household income. Other counties unaffordable even for recent graduates without student loans included New York County (Manhattan, with $55,306 median income deficit), Kings County, N.Y., (Brooklyn, with a $35,989 median income deficit), San Mateo County, Calif., ($30,715 median income deficit), and Marin County, Calif., ($26,886 median income deficit).

Student loan debt makes or breaks affordability in just seven of counties analyzed
There were only 7 counties out of the total 494 analyzed where 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. Those counties were San Diego County, Calif., and Westchester, N.Y., and five other California counties: Sonoma, Monterey, San Luis Obispo, Yolo and Napa.

Local broker perspective
"We are currently working with a couple with student loan debt from graduate school that said getting approved for a mortgage and finding a home is one of the most difficult things they've done," said Chad Ochsner, owner/broker at RE/MAX Alliance, covering the Denver market. "People are increasingly more concerned about growing undergraduate debt and the limits it may place on graduates, but the same concern doesn't usually extend to graduate students who usually have higher loans to pay off."

Report methodology
Median sales prices from June 2014 were used as the median home price in most states, but in some non-disclosure states and other states with insufficient sales deed data, the median list price was used.

Annual median household income data came from the U.S. Census Bureau for 2000 to 2012. Annual median household income for 2013 to 2014 was estimated based upon U.S. Census Bureau 2000 to 2012 numbers and then adjusted for current market conditions.

Average student loan debt for college seniors who graduated in 2012 came from a research paper called "Student Debt and The Class of 2012" from The Institute for College Access & Success.

To determine the minimum income needed to buy a home, RealtyTrac assumed the buyer could affordably spend a maximum of 43 percent of his or her income on the house payment and student loan payment combined. In calculating average house payments, fixed 30 year mortgage rates were obtained from Freddie Mac on Aug. 7 2014. It was assumed that the average borrower would make a 20 percent down payment, the mortgage term would be 30 years, and insurance combined with property tax would be 1.39 percent of the value of the home. To calculate monthly payments for student loan debt, RealtyTrac used weighted average of interest rates among different types of student loans (4.715 percent) and a term of 10 years.

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