LIMA – Unlike many popular U.S. metros, home prices in the Lima area have not outpaced wages. Will that be enough for millennials – a generation famous for its student loan debt – to call Lima home?
“You would think it would breed younger people to come (here) when they don’t have much financial stability to start out with,” said Jared Brown, 28, a project manager in Lima who participated in The Lima News’ under-40 focus group in March. “It’s a good area to start out.”
National property data firm ATTOM Data Solutions recently found the average wage-earner in Allen County would spend 14.9% of his annual income on a mortgage, property taxes and insurance for a median-priced home ($85,000), one of the most affordable U.S. housing markets analyzed by the firm.
And data suggest millennials now account for a majority of home-buyers in the county.
Mortgage software company EllieMae, which tracks markets where millennials have taken out home loans, found millennials born between 1980 and 1999 accounted for 88% of home loans closed in Allen County through June of this year.
Most millennials who plan to stay in Lima say family is what ties them here, according to the results of The Lima News’ Future of Lima Regional Survey conducted this spring. Seventy-one percent of millennial respondents who plan to stay in Lima chose family as the reason for that decision. Another 22.4% cited affordability. Those who plan to leave listed higher wages, lower crime and better housing or amenities as reasons for their decision.
Out of reach
But the dream of homeownership is still out of reach for many, even in low-priced metros.
That’s been the case for Erica Hawkins, 31, a single mother and program coordinator in Lima.
“It’s looking like no one’s going to give me any type of loan,” said Hawkins, who acquired nearly $70,000 in debt while studying at the University of Findlay and University of Phoenix. Her debt-to-income ratio is now too high for most loan programs.
She’s not alone.
Outstanding federal student loan debt surpassed $1.46 trillion in the first quarter of 2019, according to the New York Federal Reserve. As of 2017, the average borrower owed $32,731. Some borrowers, like Hawkins, owe much more.
Hawkins started enrolled at the University of Findlay when she was 17. But balancing schoolwork and caring for her then-3 year-old daughter, Alazae, was difficult. She dropped out after the first year in search of full-time work. But that was challenging too. Hawkins eventually opted to finish her studies online with the University of Phoenix, where she earned an associate’s degree in the foundations of business and a bachelor’s degree in communication.
“Being a single mom, that was just the easiest way to complete my degrees,” she said.
“I needed those degrees to get a better job here. It was hard trying to be a single mom at 17 and trying to provide for my kid at the same time. I worked around, trying to keep diapers on my kid.”
Hawkins plans to continue renting for the foreseeable future, while her loans are in forbearance. But the cost of rent around Lima has been rising too, making it harder for single mothers like Hawkins to afford housing without assistance.
Lima’s low vacancy rate is part of the problem.
DiSalvo Development Advisors put that vacancy rate at 1.3% in a recent market analysis conducted for Greater Lima Region, Inc., which is advocating for the development of new housing around Lima.
The report concluded that the Lima area, including the city and surrounding townships, could absorb more than 400 new rental units and 120 new homes, citing the low vacancy rate and the high volume of commuters from outside the county.
The lack of open rentals will continue to be a problem for Lima as it recruits new residents.
The DiSalvo market analysis suggests that “high occupancies likely have turned away prospective residents,” noting that a majority of Lima’s rental housing stock is more than 30 years old.
Things are starting to change. Shawnee Lakes apartments on Allentown Road opened in 2018. The old First National Bank & Trust building, known now as 43 Town Square in downtown Lima, was recently converted into loft-style apartments. And more lofts are coming downtown with the development of Metro Center, which is marketing upscale lofts and retail space.
In Bath Township, developers plan to build 104 new single-family homes and hundreds of upscale rental units at the Lost Creek Golfers Club. Mike Blass, owner of Blass Residential Services, the developer behind the proposed Lost Creek project, believes there’s not enough quality housing in the Lima market.
“Homes are too cheap in our market,” he said. “That means the amount of capital that you can invest in an existing structure is limited because there’s a ceiling in terms of what the end value’s going to be.”
Blass anticipates new homes at Lost Creek will sell for $225,000, while apartments could rent for about $1,200. EllieMae, meanwhile, put the average appraised value of a home purchased by homebuyers under 40 at about $139,000, according to 2019 loan data for Allen County.
While Blass expects some young homebuyers, he said his primary demographic for new homes is still Baby Boomers who are ready to downsize.
Paying a premium for mobility
A majority of households in Lima are now renters, according to the DiSalvo housing market analysis, which put the number of renter households in Lima at 52.1% as of 2018.
Homeownership has been falling across the county between 2010 and 2018, according to the report, but homeownership still surpasses renting in the townships.
Blass said he doesn’t believe the stereotype that “the only people who rent homes are the people who can’t afford to buy homes.”
“I don’t think that’s true anymore,” he said. “We do very little low-income rentals. We have 110 units total. We’re going after those working-class people who have chosen not to purchase a home, or they don’t have credit rating where they can get financing for a home.”
It’s part of a nationwide trend often attributed to student loan debt and the rising cost of real estate in coastal housing markets.
Dave McClough, an associate professor of economics for the Dicke College of Business at Ohio Northern University, offered another reason: a desire for mobility.
“Each generation is progressively more mobile,” McClough said. “If you buy a house, you’re putting down roots of some sort, so unless you’re in a highly liquid market (where) your house can be bought and sold very quickly, and affordably, buying a house doesn’t make sense when you’re a young person.
“Even though rents are rising, it still makes more sense to be able to leave. That’s worth something.”
Affordable housing markets are often “challenging places to build wealth through homeownership,” according to a 2018 report from The Brookings Institution, a public policy think tank based in Washington, D.C., which found that 30% of homes in Lima have a very low price-to-income ratio for middle-income families. “As we saw during the Great Recession, low housing prices can trap families in place if they owe more on their mortgages than potential sale price of the home,” the report concluded.
McClough agreed: “The assumption that real estate always rises is misleading,” he said. “It also creates a real challenge for folks who think in terms of ‘starter’ homes. The idea of a starter home, that’s almost mythological at this point. The idea that you buy a home and it appreciates, you buy it and sell it then roll that into a bigger home, there’s no guarantee that happens.”
Jennifer Schuetz, co-author of the Brookings report, said there’s “no silver bullet” to the problem as home values depend on local economic factors like wages, as well as the quality of public services like education and safety.
Those who plan to leave within a few years are willing to pay more for rent in exchange for flexibility and limited risk, McClough said. “It makes sense that rents might rise a little bit as people choose those benefits over the traditional benefits of homeownership.”
Reach Mackenzi Klemann at 567-242-0456.