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, Calif. – Sept. 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
“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
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
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
There were 12 counties of the 494 analyzed where students
making the median income could not afford to buy a home, even without student
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
“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
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.
The RealtyTrac U.S.
Foreclosure Market Report is the result of a proprietary evaluation of
information compiled by RealtyTrac; the report and any of the information in
whole or in part can only be quoted, copied, published, re-published,
distributed and/or re-distributed or used in any manner if the user specifically
references RealtyTrac as the source for said report and/or any of the
information set forth within the report.
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