The housing market in South Carolina has broken records even during the coronavirus pandemic, but the growing amount of student loan debt in the state continues to delay and prevent some people from becoming homeowners.
The loans millions of Americans have taken to finance their education can make it much harder for people to qualify for a mortgage based on their income and debt, South Carolina realtors and lenders say .
This debt can become an even heavier burden in cities like Charleston where saving enough money for a down payment is a monumental challenge with soaring property prices and the cost of living inflated.
The rising cost of rent in the Charleston area alone is making it increasingly difficult for people to accumulate enough cash for a down payment on a mortgage, said Owen Tyler, a Charleston area real estate agent with The Cassina. Group.
Add in student loan payments, he said, and it can become a marathon for people to bank the 3-5% down payment that is often required to even consider buying a home.
“It’s very difficult and it’s very difficult being a first-time home buyer in Charleston, South Carolina, with or without student debt,” said Tyler, who also served as president of the South Carolina Association of Realtors.
“But the reality is student debt is dragging you down,” he said. “It’s a struggle.”
A high price
Nicholas Simeon is one of the thousands of Southern Carolinians who are currently facing this financial struggle. About a year ago, Simeon, a 2014 University of South Carolina graduate, began exploring the idea of buying a home in the Charleston area.
By this point, he had already locked down a good accountant job in Charleston, earning around $ 70,000 a year. His five-year-old girlfriend was preparing to complete her law degree at USC, and Simeon grew increasingly tired of paying $ 1,600 a month in rent for his apartment in North Charleston.
So after saving what he could, Simeon met with a loan advisor. He thought he could get his foot in the door to qualify for a mortgage.
But after reviewing Simeon’s roughly $ 45,000 student debt and down payment, the loan advisor informed him that he hadn’t saved enough.
It was a frustrating achievement for Simeon. He felt well placed early in his career and earned much more than the region’s median income. But the loans he took to finance his education were still a major barrier to homeownership.
“Honestly, it’s hard to get a lump sum of principal every time you pay off a third of your paycheck in student loans,” he said. “It takes you back five or ten years. I’m not saying there is no value in my education, but I’m just saying it seems like such a high price.”
The award has since convinced Simeon to return to live with his parents in North Myrtle Beach. The rent for his apartment had to increase by an additional $ 200 per month, he said, and it no longer made sense for him to continue paying that price to live in North Charleston while working remotely.
The plan, Simeon said, is to be able to save enough money while living with his parents so that he and his girlfriend can accelerate their dream of home ownership.
A national problem
The explosion in student debt is one of the biggest changes in the country’s personal finances over the past two decades. Student loans are now the largest category of household debt in the United States, with the exception of mortgages and other home loans.
There was over $ 1.5 trillion in student loan outstanding in the United States at the end of 2020, according to the most recent data from the Federal Reserve. This is a 500% increase from 2004, when Americans held about $ 260 billion in education-related loans.
South Carolina is not immune to this trend. The most recent data from the Federal Reserve shows that more than 731,000 student loan borrowers in the state owed a total of $ 26 billion in student loans, and that number continues to increase each year.
The amount owed by individual borrowers has also increased in South Carolina in recent years. In 2016, the state’s student borrowers owed, on average, more than $ 30,000 in loans. In 2020, that number has grown to over $ 36,000.
During the same period, the median price of homes in the Charleston area, the state’s most expensive real estate market, rose from $ 240,000 to over $ 300,000. All of this makes it harder for student loan borrowers to access homeownership.
Wes Sellew, mortgage lender with Renasant Bank in Mount Pleasant, said student loans are often the first thing he looks for when clients show up at his office. How student debt is factored into applications for federally guaranteed mortgages, for example, can go a long way in deciding whether someone can afford to pay off a home loan.
“As soon as I see a student loan, my radar goes off,” he said. “It’s a discussion we have all the time.”
If student debt in South Carolina and the rest of the country continues to grow at the rate of recent years, it could increasingly influence other segments of the economy, said Joey Von Nessen, research economist at the ‘University of South Carolina.
“The housing market is the most obvious example because it’s the biggest purchase most Americans make,” said Von Nessen. “There is only a certain amount of debt that an individual can responsibly assume and shoulder.”
The housing industry is taking note
The National Association of Realtors is already well aware of the influence that student loan debt plays in their industry. The group has conducted studies in recent years on how student debt affects home sales and ownership trends.
A major study by the group in 2017 noted how the homeownership rate in the United States had declined as the amount of student debt in the country continued to rise.
“As this amount of debt has increased, the homeownership rate has fallen and has fallen more sharply among the younger generations,” the report says.
This research found that about seven in ten student borrowers said their college debt affected their decision to buy a home or their ability to finance such a purchase. And he noted that many potential buyers who find themselves in this situation are forced to postpone the purchase of a property for up to seven years.
This probably plays into the fact that the average age of first-time buyers has increased in the United States in recent years.
The high amount of student debt that many people incur can also fuel existing disparities in homeownership, which is the most common way for Americans to build generational wealth.
Another study released this month by the National Association of Realtors, for example, found that black Americans are twice as likely to have student loans as their white counterparts. And the aggregate debt of black student borrowers was on average $ 10,000 more than that of white student borrowers.
This likely contributes to the fact that black applicants are turned down for mortgages at twice the rate of white applicants, according to the study.
Dorothea Bernique, CEO of Increasing Hope, a North Charleston nonprofit, has been providing financial advice to people for 15 years.
It is absolutely true, she said, that student loans are a huge problem for potential buyers. Even people who are able to scrimp and save enough money for a down payment and closing costs can find themselves stranded from homeownership due to the size of their debt, she said. declared.
Bernique, however, encourages people to meet with a mortgage advisor to learn more about their finances, even if they have significant debt. As a licensed housing counselor, she has met many people who just don’t have the basic financial knowledge to know what steps to take to become a homeowner.
“There are ways to overcome it,” she said. “That’s why people like us exist.”