Community News

So much good comes from being a “college town,” and the benefits that Montana State University brings to Bozeman and Southwest Montana are numerous. However, a somewhat understated issue involves the difficulty for Montana college graduates being able to afford to stay in their home state once they have completed their degree.  It goes even deeper in that when they do stay, homeownership is more daunting than ever. This concern is not just a local one.  I recently attended the 2016 REALTORS® Legislative Meetings and Trade Expo in Washington D. C. where experts, including the National Association of REALTORS® chief economist Lawrence Yun, spoke to the nationwide challenges the housing market is currently facing.

The percentage of first-time homebuyers is a figure that is tracked annually in the real estate industry as a good indicator of ease of market entry.  One obstacle to homeownership that has been identified is the impact of student loan debt on borrowing ability. The recent statistic is that first-time homebuyers comprised 32% of all buyers, which is the lowest level since 1981 when the tracking first began.

Elizabeth Warren, U.S. Senator for Massachusetts and a member of the Senate Committee on Banking, Housing, and Urban Affairs, presented the following facts: Student loans in the amount of a median of $25,000 to upwards of $100,000 are essentially thwarting homeownership for recent college graduates. In 2015, seven out of ten college students had to borrow money for their education. A mere six months after graduation, nearly one million people will begin making loan payments while joining the over 40 million that already do. This situation basically prices young people out of the housing market while weighing down young families. She described a bit of a vicious circle in that 59% of jobs require some post-secondary education, and in fact, the economy cannot flourish without college-educated workers, yet after obtaining the education these same people are debt-ridden. While degrees take us forward, debt takes us back.

In addition to the fact that the increase in the amount of student loan debt translates to higher monthly payments, simply having the debt can often put potential buyers into a subprime lending category by lowering their credit score. Furthermore, recent graduates simply do not have the desire to take on additional debt until their earning capacity has increased.

With low inventory in both the rental and sale national markets, newly constructed homes become an even bigger area of interest. By not building enough new homes, there has been a bit of a housing shortage that has changed the way we live – including the increase in multi-generational living situations.  To directly quote Yun, “Homebuilders need to significantly ramp up production so that more existing homeowners can trade-up and list their home for sale. Otherwise, inventory shortages will continue and demand could soften even more in some areas as a greater number of buyers are unable to find homes at affordable prices.” 

So, how about some good news?  For one, Montana State University has recently introduced the MSU Know Your Debt program which is garnering national praise via the Bloomberg Business News because of its innovative yet practical nature. Essentially the program’s goal is for students who are funding their education via financial aid to be more aware of their actual debt and to also focus on keeping expenses in line. Briefly summarized, the three-step program for students who are carrying higher than average debt includes notification by letter of the current loan amount, information that in order to continue receiving loans the student will need to pass 67% of their courses, and that above 12 credits the courses are free.  This program has tracked positive results for students in a decrease in debt the following semester, an increase in credits taken, and higher GPAs. Secondly, mortgage rates are still holding at a near three-year low, which increases housing affordability for first-time homebuyers and those wishing to change their housing situation alike. Additionally, by taking a quick glance at the City of Bozeman Building Permit Report through April of this year, it appears that our local market may be faring better than the nation as a whole when it comes to new housing starts. Though the number of permits issued for new housing units is down somewhat year-to-date compared to 2015, April had an outstanding performance and will ideally lead the way for a busy spring and summer building season.