In today's real estate market, much of the lending industry's focus is on first-time homebuyers and Millennials. Not just to increase page views or create hashtags – as real estate values have increased and local markets have recovered, first-time homebuying has not yet returned to historical norms. The real estate ecosystem is missing a critical participant. Much of the blame for this has been directed at the high level of student debt that has made many Millennials delay home buying and even form households.
While it is true that adding debt can make a home purchase dicier (adding any form of debt will increase your debt-to-income ratio, a key underwriting metric), the Housing Wire's recent article 'College Graduates More Likely to Buy a Home' explains a different way of looking at college loans. While it is not surprising that graduating with a bachelor’s degree and no debt makes you 43% more likely to buy a home than a high school graduate, the statistics show the importance of completing your degree when it comes to homeownership. A college graduate with some debt makes you 27% more likely to be a homeowner than if you had stopped at high school; but even more fascinating: just attending college (without graduating) and accumulating some debt makes it less likely (32% less) you’ll own your own home than if you had skipped college altogether. The bottom line – college debt shouldn’t stop you from becoming a homeowner. Still, if you take the plunge to attend college and take out a loan to pay for it, you would be wise to finish the degree and take the (presumably) higher income to offset the debt and make it easier to pay off sooner.
So once you’ve paid off your student debt or are otherwise ready to buy, where can the first-time homebuyer currently find the best value? Bloomberg News took a look at the largest 100 metro areas in the U.S. and found the least and most affordable places to buy, specifically for those aged 25-44. The analysis included comparing the area’s median income with the minimum earnings one would likely need to afford a median-priced home in that metro. That “Affordability Gap” can give you a rough look at where you’ll find it easiest to afford a home. The results show that buying out west will continue to be a challenge for many Millennials, while the Midwest provides great value (minus ocean views and Disneyland).
The top five most affordable metros include:
Des Moines (+$50,157) Pittsburgh (+$46,828) Baltimore (+$46,572) Minneapolis (+$46,005) Kansas City (+$43,733)
*Number shown represents how much more the average income is than the minimum amount necessary to purchase a median-priced home.
At the other end of the scale, the “least” affordable metros are found in areas of high-income potential, but tight inventory (number of available homes) and rapidly rising prices:
Honolulu (-$25,607) San Jose (-$25,475) Los Angeles (-$20,815) San Francisco (-$13,491) San Diego (-$4,744)