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Despite the challenges faced by those first-time homeowners under age 35, almost every U.S. housing market is still affordable for recent graduates making the median household income — even those with student loans.

That’s the finding from RealtyTrac, which says 96% of housing markets are affordable to the younger generation of homebuyers.

Using median home price data collected from public records along with average student loan debt by state from The Institute for College Access & Success, the report examined the minimum amount of income needed to purchase a median priced home with and without student loans in 494 counties, each with a population of at least 100,000 and where sufficient data was available.

In 475 counties (96%), recent graduates making the median income and having the average student loan debt for the state could afford to buy a median-priced home. Affordable for this analysis was considered up to a maximum 43% of income spent on house payment (including taxes and insurance) assuming a 20% down payment and a 30-year loan with a 4.13% fixed interest rate.

“Contrary to much rampant speculation that student loan debt is holding back homeownership among recent graduates, we found that the vast majority of markets are affordable for recent graduates making the median household income — even many of those recent graduates with student loans,” said Daren Blomquist, vice president at RealtyTrac. “However, student loans still represent a significant handicap for recent graduates in terms of the minimum income needed to buy a median priced home. Nationwide, recent graduates with student loans need to earn 34% more ($8,969) than recent graduates without student loans to be able to afford a median-priced home.”

States where recent graduates with student loans needed to make up the biggest percentage in income to equal the buying power of those without student loans were Michigan (55%), Ohio (53%), Pennsylvania (49%), Iowa (48%), and Alabama (47%).

Affordability for median-income earners was still good in all of these states, with the median household income comfortably above the minimum income needed to buy a median priced home — even with student loan debt. But the average amount of student loan debt in these states was large relative to median home prices, resulting in a bigger percentage impact on home affordability.

Click to enlarge.

States where student loan debt had the least percentage impact on income needed to buy a median priced home included California (graduates with student loans need to earn 12% more than graduates without student loans), New York (17%), Virginia (17%), Massachusetts (18%) and Wyoming (19%).

There were 12 counties of the 494 analyzed where students making the median income could not afford to buy a home, even without student loans.

Some of the counties that were unaffordable for recent graduates making the median income even without student loans were led by San Francisco County, where the minimum income needed to buy a median-priced home without student loan debt was $63,301 less than the county’s median household income. Other counties unaffordable even for recent graduates without student loans included New York County (Manhattan, with $55,306 median income deficit), Kings County, N.Y., (Brooklyn, with a $35,989 median income deficit), San Mateo County, Calif., ($30,715 median income deficit), and Marin County, Calif., ($26,886 median income deficit).

“We are currently working with a couple with student loan debt from graduate school that said getting approved for a mortgage and finding a home is one of the most difficult things they’ve done,” said Chad Ochsner, owner/broker at RE/MAX Alliance, covering the Denver market.  “People are increasingly more concerned about growing undergraduate debt and the limits it may place on graduates, but the same concern doesn’t usually extend to graduate students who usually have higher loans to pay off.”

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