College debt is keeping younger generation from buying homes
Two years after Haley Sooudi finished graduate school at Lamar University, she decided she was ready to buy her first house.
Armed with an excellent credit score and a good-paying job in dietetics, Sooudi said she applied for a home loan in 2014.
She was surprised when her application was rejected.
“The debt-to-income ratio caused me not to get approved,” said Sooudi, 30.
Sooudi had accumulated around $60,000 in student loan debt - money she used to pay for her undergraduate and graduate degrees. The debt was large enough to make her too risky for lenders.
Sooudi, who has worked as a real estate agent at Keller Williams for the past year and a half, said her experience isn’t unique.
The process of buying a house,
with its seemingly endless trail of paperwork, inspections and fees, has always been difficult for first-time home buyers. In recent years, however, the process has become a greater challenge for young professionals who are leaving college with big student debt, which experts say is a result of rising tuition costs.
That’s why many millennials (roughly defined as people born between the early 1980s and mid-1990s) are putting home ownership on hold.
Student debt triples nationwide
The number of people who bought homes by the age of 30 dropped from 31 percent in 2004 to 21 percent in 2016, according to a study released this month by the Federal Reserve Bank of New York.
The same survey found that student debt nationwide has tripled from 2004 to 2016, going from $360 billion to $1.2 trillion.
Student debt accounted for up to 35 percent of the decline in home ownership for 28- to 30-year-olds polled between 2007 to 2015, the study found.
Hester Bell, a Re/Max real estate agent who has worked in Beaumont for 42 years, said she’s seen a number of young buyers denied housing loans because of outstanding student debt.
“As soon as I get a call from a buyer, I ask if they’ve talked about getting a loan on a house,” said Bell.
Bell said more sellers are offering to pay the closing costs, which can range between $5,000 and $10,000, for younger buyers who are strapped for cash after making a down payment.
Bell said some first-time buyers work with mortgage companies to help manage their debt. Others build their credit scores for months before they start looking for a home.
“You don’t go buy a house like you buy a loaf of bread,” she said.
College tuition and fees have increased 81 percent from 2001 to 2009, according to the Federal Reserve Bank’s study.
The study predicted that if tuition levels had stayed close to 2001 rates, 360,000 additional young people would have owned homes in 2015.
Full-time, in-state students planning to take undergraduate classes at Lamar University in the fall and spring semesters will pay nearly $11,000 in tuition and fees. Out-of-state students can expect to pay around $22,000 for two semesters.
Those estimates, found on Lamar University’s website, do not include the costs of books, housing, food and transportation.
Lamar estimates in-state undergraduate students will spend close to $11,000 per semester to cover all expenses, while out of state students will spend upwards of $17,000 per semester.
That means in-state students taking eight semesters (four years of college) of undergraduate courses should plan to spend around $88,000 on their education.
Sooudi said when she studied clinical nutrition and dietetics in graduate school, she was focused on her future career, not how her student debt could affect her life post-college.
“When you go to school, you’re trying to further your life and your future, and you kind of get stuck,” she said. “You don’t know the cost of it.”
She said after working for several years and making a career change into real estate, she now owns several investment properties in the area.
Some strict guidelines have eased recently
James Gaines, chief economist for Texas A&M University’s Real Estate Center, said in addition to having more financial debt than their parents did when they were their age, many millennials were denied home loans because of the financial crisis of 2008.
Since 2008, the lending industry has drastically tightened requirements for first-time buyers, he said.
Some strict guidelines on credit scores and employment history, however, have eased in the past year and half, according to Gaines.
Financial struggles aren’t the only factor keeping young people from buying their first homes, he added.
He said many millennials saw their parents lose money on houses during the financial crisis and don’t link home ownership with financial prosperity the way baby boomers did.
“Most millennials say they would like to own a house, but they aren’t as anxious as the baby boomers of the 1970s,” he said.
Gaines said he expects the market to shift soon as more millennials start entering their 30s - a time when people are more financially stable and more likely to be married with children.
“It’s going to pick up for sure, and most realtors are expecting that,” he said.
According to a report released this year by the National Association of Realtors, people under 36 made up 34 percent of homebuyers between June 2015 to June 2016. That was the largest group of buyers, according to the report.
Even though the market has picked up, Gaines said young buyers need to be in good financial standing to be able to afford not only the down payment and mortgage payments, but also property taxes, repairs and additional costs that come with owning a home.
According to 2016 census data, the median gross rent for Jefferson County is $761 a month while the median monthly costs of owning a house is $1,223.
Gaines said the average house in Beaumont costs between $143,000 and $145,000.
Owning something of her own is important
Hannah Breitenstein said she’s in the process of purchasing her first home - a three-bedroom, three-bathroom home with an open floor plan in the West End.
She said she made the decision to make the purchase last year because she’s tired of paying rent for apartments. Breitenstein wants to eventually get married, have kids and intends on staying in the area, she said.
“I’ve been wanting to own something that was mine,” said Breitenstein, 25.
Breitenstein, who works doing sales and contracts for the Nederland engineering firm OCI, said she’s been saving for the house for a year.
She said her feelings on the process have ranged from anxious to excited, but said her parents are “ecstatic” that she’s got a steady job and is buying her first home.
She said they’ve helped her financially.
They’re paying some of the house’s closing costs and paid for her tuition at Lamar University, which allowed her to graduate debt-free in 2015, Breitenstein said.
“They’re really happy and proud,” she said.