School debt has varying effect on homeownership
Chris Manzi and his girlfriend, Amber, were carrying hefty student loans when they decided to double down on their debt and buy a home.
Were they nervous? Absolutely, Manzi said. But the young couple still figured it made sense.
“To rent in the city, we would be paying about the same price in rent as it would cost a mortgage,” said Manzi, 26, an attorney who bought his four-bedroom Highland Park home in July. “At that point, it became strictly a business decision.”
Policymakers and economists have debated the extent to which student loan debt has hindered the ability of the millennial generation to start a financial nest egg. Some have said mounting college loans threaten to derail the housing market and force young professionals to put off major life decisions such as marriage. Others say the concerns are overblown, and that young people with large debt burdens can still enjoy the same benefits as past generations, including homeownership.
Manzi and his millennial peers — considered anyone born after 1980 — offer a more nuanced portrait in which their job prospects, life goals, level of debt and even where they live determine when and how much they can invest for the future.
“Student debt most certainly has an impact on your chances of becoming a homeowner,” said Svenja Gudell, chief economist at Seattle-based real estate firm Zillow. “But it's probably not as much as you think.”
A Zillow study last month found that student debt had only a small effect on homebuying decisions. The likelihood of homeownership for a married couple with no debt were 69.8 percent, barely a percentage point higher than if that same couple carried $30,000 in loans, Zillow found. And if one of those people has an advanced degree, then it made them more likely to own a home than a couple with less debt and only a bachelor's degree.
A recent study by Federal Reserve Bank of Cleveland suggested that rising student loan debts had not reached a level that they outweighed the benefit of increased earnings from having a degree. The heaviest borrowers of this generation remain upwardly mobile, able to buy homes and move into nicer neighborhoods, said Cleveland Fed economist Stephan Whitaker. But the burdens of rising debt are very real, he said. The top-third of borrowers in this generation have a tougher time than past generations moving up the socioeconomic ladder.
“We've seen a rise in debt, but the apparent benefits that that debt is bringing to borrowers is declining,” he said, referring to economic advantages of having a post-secondary education. The study showed the gap in economic advantages — such as homeownership — is narrowing between those with the heaviest student-loan debt and those who borrowed less or nothing.
Homeownership has been a dream deferred for Greg Dvorsky. The 28-year-old McCandless native and University of Pittsburgh graduate lived with his parents for several years while he chipped away at $60,000 in student loan debt and saved for a home. Last month, he and his girlfriend purchased a three-bedroom Cape in West View. It was a proud moment, Dvorsky said, but one that he wished had come sooner.
“I'm 28 years old and have been in the workforce for five to six years now and, normally, buying a house wouldn't even be a question if I didn't have the school debt,” he said. “It really kind of delayed a lot of things.”
But not all debt burdens are alike, and the investment prospects for someone with $10,000 in student loans are very different from someone with $100,000.
James Craig, 26, of Shadyside said he cannot imagine the day when he can start saving for retirement or to buy a house. He has nearly $200,000 in student loans from his undergraduate education and law school.
Craig is a real estate attorney and says he handles a lot of closings. Yet he wonders if he'll ever purchase a home for himself.
“This essentially eats the majority of my disposable income,” he said. “It leaves no room for any savings, retirement planning, saving to buy a house.”
Being in Pittsburgh may improve his chances, Gudell said. Just like in real estate, location matters in determining the chances that a young person with student loans will be able to get ahead financially.
The Cleveland Fed study found that individuals in the South and some parts of the Midwest stood a better chance of being upwardly mobile than their peers in the Northeast and California. Millennials on the coasts may bring in higher paychecks, but not enough to counter-balance the proportionately higher cost of living.
In Pittsburgh, rents have climbed much faster than home prices, according to Zillow. Which is why for many young people, the decision to add to their debt burden through a home purchase still makes sense, because at least they have some chance of seeing that money returned to them in equity.
“If you're in a market like Pittsburgh, people are more confident in their ability to buy a house,” Gudell said. “Rents are rising so rapidly that it's pushing more people into homeownership.”
That was the simple calculation for Manzi when he bought his Highland Park home in July. The months since have opened his eyes to a more complicated reality, one in which he has battled moisture stains and discovered the quirks of living in an older home.
Not that he regrets buying his place. He's willing to be patient. But, just like law school, he hopes the investment in a home pays off.
“I'm afraid for the next year. A lot of our money is going to be poured into this place,” he said. “I've got a lot of sweat. I'm hoping to get the equity.”
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or firstname.lastname@example.org.