Unfriendly market awaits students buying homes
The next step after graduation for Utah State University students may be attempting to purchase a home. However, the cost of an average home is rising while personal income is staying put, which often poses a challenge for first-time homebuyers.
Junior Keith Maynard, who has been married for almost four months, said he and his wife have not considered buying because they lack the necessary income.
“I’m a little concerned about the market,” said Maynard, a political science major. “But I guess I don’t know enough about it to be scared. Besides, I think by the time I do become interested in buying, I’ll make enough.”
Kevin Thueson, a junior majoring in business management, is getting married next month and said that he and his fiancé are going to rent until he knows where they will live after graduation.
“I’m not really worried,” said junior Kevin Thueson, majoring in business management. “My dad promised me a big pile of cash to help me buy my first house.”
Not every student will be as fortunate as Thueson. Students will have to rely heavily, if not solely, on the income they receive from their post-graduation employment.
Making enough to buy, however, is the issue. According to Washington Post columnist Kenneth Harvey, home values have risen throughout the nation by an average of 13 percent, the fastest rate in more than two decades.
According to the National Association of Realtors, the average cost of a single-family home has risen in the past year to $188,200. Despite rising costs, four out of 10 homes purchased are by first-time homebuyers, the largest percentage of first-timers in several years.
Some economists worry that percentage will drop if wages do not rise or if home prices do not fall. As the average cost of a single-family home continues to climb, college students and first-time homebuyers may eventually not be able to afford the market price.
Professor of economics and vice provost of USU, Chris Fawson, said that most entry-level, college graduates are not able to afford today’s home prices.
“The typical family with an average household income of $30,000 a year could not usually qualify for a 30-year conventional home loan,” Fawson said.
He said although the housing market may eventually outrun the low income of young adults looking to buy their first home, that category of homeowners constitutes a small minority in society.
For USU students worried about making enough money upon graduation, that small minority is not without hope when it comes to qualifying for a home. Fawson said banks and mortgage lenders are taking advantage of low-interest rates for families with low incomes.
“Banks are finding innovative ways to leverage people’s income to get them into homes they could not otherwise afford,” Fawson said.
Recent USU graduate and local elementary school teacher Rebecca Warnes was able to get into a home with the help of a 5/1 Adjustable Rate Mortgage or ARM loan. With this loan, Warnes is locked into a low-interest rate for five years and then is subject to inflation.
An ARM loan is just one of the ways low-income consumers, can qualify for a home. Most of these loans can help students and first-time buyers get into a home even without a down payment. These loans work to lower the monthly payment by having the owner pay mostly just the interest that accumulates on the principal amount borrowed.
Warnes cautioned, however, that even with the help of a creative loan, first-timers might not have been able to buy without sufficient income, which may mean that both spouses must work.
“If my husband and I did not make enough, we probably would not have qualified for the home we bought,” said Warnes.
Besides the speculation and concern with the rise in home values, some experts agree that young adults can keep up with the market as long as interest rates stay low and the variety of payment-lowering loans continue to be available.
-dsnoack@cc.usu.edu