The diplomas have been signed, the caps and gowns returned, and – for the lucky ones – jobs have been secured. Now where do all those new college graduates move?
Trulia looked at the nation’s largest rental markets to find out the most cost-friendly places for grads to rent after graduation. The trick? Finding a metropolitan area where the incomes of recent grads sufficiently exceed that area’s housing costs. Sadly, only 19% of the rental markets examined had median rents for which recent grads could qualify on their own (without moving in with roommates).
Spoiler alert: California did not make the list.
|Median income of new grads*||Median rent||Income needed to qualify for median rent**||Roommates needed to pay median rent|
*Trulia defines “new grad” as a college-educated individual aged 22-25.
**To qualify for the median rent, the cost of rent alone needs to be no more than 31% of a household’s income.
One thing to note: On average, one-in-four college graduates enroll in a graduate program within one year of graduating with their bachelor’s degree (40% enroll in a graduate program within five years of graduation, according to U.S. News). Thus, many recent college grads, as defined by the study, are still very much living the college life. This means working part-time jobs and residing with roommates are generally givens.
Those facts aside, what’s most interesting about this table is that the place with the lowest median rent (Riverside-San Bernardino) is tied with San Francisco (the place with the highest rent) for the worst rental situation for new grads. In both places, the average new grad needs two-to-three roommates to qualify for median rent.
I don’t know about you, but if I’m a landlord and receive a rental application from 3-4 young adults, I’m going to be hesitant. Unless of course your apartment is already in bad shape, in which case the recent grads won’t mind because they’ll less likely to be choosy.
Further, rents continue to rise at annual rates of 5%-9% in most California metro areas, so it’s certainly not getting any cheaper.
So how do new grads make it? In addition to tracking down needed roommates, many simply devote more of their paycheck to housing costs. For instance, in Los Angeles the average household spends 47% of their income on monthly housing costs. While renters are forced to devote more of their income to paying rent, they are unable to set aside money to save for a down payment. Hence the low 35% homeownership rate of young adults aged 25-34 today, down from 41% during the Millennium Boom.
The situation for recent grads (and the real estate agents who would otherwise serve them) can start to get depressing if you think about it long enough. So let’s look forward to better times.
The jobs market in California continues to pick up steam, and with it wages. National average hourly earnings have increased 2.5% over the past year, according to the Bureau of Labor Statistics. This may not seem like much, but the past few months have actually experienced the highest year-over-year increase in wages since 2009. The economy is headed into an expansion, which is good news at last for a generation having come of age in the midst of the Great Recession.
So, give those recent grads a few years to capitalize on wage increases and save up for down payments, and they’ll be hitting the homebuying market with gusto. Coincidentally, their entrance into the housing market will coincide with Baby Boomers retiring and selling, in the Great Confluence of home sales. This action is all expected to peak around 2019-2020.
For the time being, don’t expect to run into too many young homebuyers. Focus your FARMing efforts on more established individuals and families, who are more likely to be ready to make their move on the housing market.