For Richland County’s population of recent high school and college graduates, moving from school into the “real world” can be a challenge. Moving into a new home often proves to be particularly difficult for recent graduates with the burden of student loans hanging over their heads. However, homeownership is a possibility with a solid plan and the right advice from local professionals.
Low home ownership rates for recent graduates is a nationwide problem reflected in the U.S. Department of Housing and Urban Development’s national housing market summary for the first quarter of 2014. Research from the National Association of REALTORS (NAR) shows high debt-to-income ratios for young adults who are burdened with student loans and grappling with a tough job market, reducing homeownership for young people.
“They feel like they’re in a position where either they don’t have money to save for a down payment, or they’re worried about taking on too many obligations,” said John Brown, president of Richland Bank. “It has led to some recent graduates waiting longer (to purchase a home) than they would’ve 20 years ago.”
A study by the Federal Reserve Bank of New York from 2003 to 2013 shows that beginning in 2012, young people in the U.S. with student debt had lower homeownership rates than those without student debt. The homeownership rate for adults 27 to 30 years of age with student debt slid from 31 to 21 percent between 2003 and 2013. The homeownership rate for the same age group without student debt dropped from 29 to 22 percent over the same period.
The study states much higher levels of student debt and a much greater percentage of young people with student debt were factors in the decline. Brown emphasized the lower homeownership rate comes from the increasing cost of education, not the increasing cost of purchasing a home.
“Home affordability and loan availability in Richland County and Mansfield is still very good,” he said. “Real estate pricing and real estate home availability and affordability are very regional. The same home in Mansfield is going to cost four times as much in New York or California. You’re going to be able to buy a lot of house for your money in Richland County.”
When the time comes to look for a home, Richland County is not short on inventory. Barbara Murray, RCE at the Mansfield Association of REALTORS®, explained there are many homes to choose from in the surrounding area.
“Richland and Crawford County, as well, has an ideal location in the state with great highway access to I-71 and State Route 30,” she said.
While Richland County may have a higher stock of homes to purchase, the region offers fewer options for recent graduates looking to rent. Jerry Holden, president and broker for The Holden Agency, stated the inventory for renters is very slim.
“I see a lot of people calling to rent places, not apartments but homes or condos,” he said. “Our market here is not like the Columbus or Cleveland market where there’s plenty of that. Here, places to rent are pretty much nonexistent.”
Holden explained there is more opportunity for builders, investors and developers to make more money in building apartments as opposed to homes and condos specifically for renting.
“Here the population hasn’t increased in many years, so as the population decreases it’s a lot more difficult to go to a bank to loan money to speculate about renters,” he said. “A lot of people aren’t going to risk their money to build a whole bunch of nice townhouses assuming that the 25 to 40-year-old age group is going to rent those.
“In Columbus there are so many young professionals because of The Ohio State University, and with all those students coming out of school there is higher income, which gives more opportunity for these developers to speculate and build these developments, these lifestyle communities,” Holden continued. “They’re building restaurants, a sand volleyball court, a clubhouse, all to go along with this community to accommodate those young professionals and active adults, and we don’t have that here right now.”
With a low selection of rentals, Holden stated young adults tend to buy less-expensive homes they can move on from easily should their lifestyle change. When planning to buy a home, Holden advised working within your means, establishing a debt-to-income ratio, and consulting with a lender is the best route to take.
“We are doing no favors to any of our customers if we put them in a position where they can’t afford to pay their mortgage,” said Brown. “One thing we take into consideration is what your obligations are and what your obligations are going to be in a year or two when your student debt is in repayment. When you have another couple hundred dollars in student loan payments, we would be doing any applicant a disservice if we put them in a mortgage they can’t afford.”
For young adults thinking of buying a house in the future, Brown advises to pay attention very early on to maintaining a good credit rating. Other early actions to take include saving for a down payment and meeting with a knowledgeable mortgage lender to make a plan.
“Do it when you first graduate, not a month before you want to buy a house,” explained Brown. “Sit down and discuss what you need to do over the course of a few years to put yourself in a position where you are going to be approved and feel good about your ability to pay back that loan and not get yourself in trouble.
“There are plenty of rates and affordability in our region,” Brown added. “It’s still a very good time to buy.”
