Recent college graduates in the United States strapped with student-loan debt need to make 34 percent more to buy a median-priced home than do recent grads who don’t have student loans, according to RealtyTrac. But those first-time homebuyers in the city of Boulder face a much steeper challenge because its homes cost much more than those in surrounding areas. (Doug Storum/Boulderopolis)
High housing costs are locking thousands of young, college graduates and first-time Colorado homebuyers out of the market as wages stagnate and tuition loan payments rise.
In Larimer and Weld counties, where the median home price is $241,750 and $210,000 respectively, some debt-burdened grads can afford homes providing they can come up with a 20 percent down payment and are willing to spend 43 percent of their income on a mortgage payment, according to a new report by RealtyTrac.
In fact, the report concluded that grads meeting those criteria could buy homes in 96 percent of the housing markets RealtyTrac examined.
But it’s more difficult in Boulder and Broomfield counties, where the median home price is $350,000 and $306,180, respectively.
The report said first-time homebuyers on average need a minimum income of $37,010 in Weld County, $41,474 in Larimer County, $50,532 in Broomfield County and $56,693 in Boulder County. Those salaries are well above the $35,000 the Federal Reserve Bank says most young college grads and others earned nationwide in 2013.
Recent grads interested in buying in the city of Boulder face one of the largest challenges, with the median home price coming in at a whopping $630,000. Even buying a townhome or condominium is difficult with a median price of $265,000.
“Boulder County has one of the highest median home prices of the 494 counties studied by RealtyTrac,” said Daren Blomquist, a vice president of the company. “Student loans still represent a significant handicap for recent graduates in terms of the minimum income needed to buy a median-priced home.”
The average student loan is $31,000 for graduates of the University of Colorado in Boulder, Colorado State University in Fort Collins, Colorado School of Mines in Golden and the University of Denver.
Blomquist calculated that a Colorado graduate with student loan debt of $31,000 wanting to buy a $260,000 home would need a 20 percent down payment of $52,000 and an annual salary of $46,000 to qualify for the mortgage. Under this scenario, the monthly mortgage payment would be around $1,310.
With a 5 percent down payment of $13,000, the required annual income would be $51,000. The monthly mortgage payment would be, $1,499, Blomquist said. The student loan would require a payment of $339 per month if it was a 10-year loan.
Lou Barnes with Premier Mortgage Group in Boulder said the primary problem is that incomes have grown very little since the 1990s, while home prices have climbed steadily.
“College grads feel the pinch, definitely,” Barnes said.
Barnes said several factors are exacerbating the problem, including increasing college tuition costs, declining entry-level wages, increasing mortgage insurance costs and a shortage of homes for sale.
“Where are the college grads who step into a job that pays $58,000? There aren’t any,” Barnes said.
He said coming up with a 20 percent down payment isn’t realistic.
“At the wages recent grads are earning, they can’t save for a down payment.” Barnes said he believes traditional family assistance was eliminated by the recession. “All families lost in the Great Recession.”
Gene Humphries, division president for Cornerstone Home Lending based in Fort Collins, said home markets in Larimer and Weld counties are more affordable for recent grads compared with Boulder and Broomfield.
“Our job as lenders is all about calculations and the debt-to-income ratio,” he said. “From 2000 to 2007, we may have had a little more flexibility in how we calculated, but since then, credit guidelines and qualification requirements have tightened.”
Humphries said he believes the combination of flat income growth and increased costs in college tuition are contributing factors.
Chad Ochsner, owner/broker at Re/Max Alliance, covering the Denver market, said the squeeze is even tighter for people who incurred more student-loan debt in graduate school.
“People are increasingly concerned about growing undergraduate debt and the limits it may place on graduates,” he said, “but the same concern doesn’t usually extend to graduate students who usually have higher loans to pay off.”
Doug Storum can be reached at 303-630-1959, 970-416-7369 or dstorum@bizwestmedia.com.