Clear Capital: The College Town Effect On Housing

Clear Capital: The College Town Effect On Housing Clear Capital has a new report out showing college towns' unique immunity to the boom-bust-bubble cycle.

According to the firm's Home Data Index Market Report, metropolitan statistical areas (MSAs) with noteworthy university influence boast home price trends that far outperform the national rates of growth since 2004.

At the same time, the report, which looks at home price trends on a rolling three-month basis, shows that student debt is likely to create a drag on the overall housing recovery.

A sample of 10 metros, each with a university presence, shows that they have seen home prices grow by 32% on average since 2004. Considering national home prices have only now climbed back up to 2004 price levels following nearly three years of recovery, these college towns have performed remarkably well.

As the report points out, sustained gains at the MSA-level are a direct benefit of metros with heavy college influences. The Ithaca MSA, home to Cornell University and Ithaca College, has seen home prices rise 51% since 2004, putting the metro at the head of the class nationally.

This trend is not limited solely to the Eastern Region, as Boulder, Co., home to the University of Colorado, boasts a 26% increase since 2004. These markets each maintain a foundation of sustained demand from students hungry for an education and in need of a roof over their heads.

Even larger MSAs with a heavy academic focus, like Boston, are seeing impressively strong micro-market growth. Cambridge, Mass., housing demand from students attending Harvard University has helped fuel a price growth of 39% over the last decade. Harvard's ZIP code has outperformed the Boston MSA by 36% since 2004, highlighting the remarkable influence of academia on local home prices. According to the report, there's no question that the numerous universities within this area, including the Massachusetts Institute of Technology, contribute to the demand in the Cambridge ZIP code and surrounding areas.

This symbiotic relationship between university life and home prices, however, is localized. Stronger demand from first-time home buyers is now a prerequisite to a sustainable recovery as investor demand dwindles.

College graduates who feel confident enough in their employment prospects and the housing market to attempt to qualify for a mortgage will have to grapple with an average of more than $30,000 in existing student debt. With student debt now in excess of $1 trillion and growing, the housing market faces demand headwinds at a crucial transitional point in the recovery, the report claims.

‘College towns are just another example of how real estate trends are impacted by local market conditions,’ says Alex Villacorta, vice president of research and analytics at Clear Capital. ‘It's clear a significant portion of loan dollars are going toward student housing costs, thereby creating a critical demand surge. Healthy student populations activate a positive feedback loop where housing fuels local economies and jobs, which increase the overall confidence and demand in these towns.

‘Concerns over rising student debt and recent college graduates' ability and desire to qualify for a home loan could certainly create a drag on the recovery overall, as the next phase depends on re-engagement by traditional home buyers,’ Villacorta says.

‘Generally, investment opportunity in college markets yield benefits that ripple beyond localized home price strength, [given that] higher education typically begets higher income, which has allowed more folks to invest in the American Dream.’

Villacorta goes on to say that although this is still true today, rising student debt and a first-time home buyer's desire and ability to qualify for a mortgage will undoubtedly pose a challenge for the recovery.

‘As we see investment demand and distressed sale activity transition back to a level more in line with historical averages, we need to see demand from traditional home buyers ramp up,’ he says. ‘The first-time home buyer segment is a key portion of this demand, but their desire and ability to offset the housing demand gap in today's environment remains to be seen.’


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