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More than a quarter of American homeowners spend more than 30% of their monthly income on housing, a new study shows.
Using figures from the U.S. Census Bureau, product research company Chamber of Commerce analyzed median household income and monthly housing costs in 170 of the most populated cities and found that 27.4% of all homeowners are “house poor,” or “cost-burdened.”
The greatest amount of “house poor” homeowners live in Hialeah, Florida, Los Angeles and New York City, the study found, with more than 40% in each metropolis living beyond their means. Eight of the top 10 cities for cost-burdened homeowners in the U.S. are located in either California or Florida, with the other two being New York City and Honolulu, Hawaii.
A longtime personal finance rule advises capping all housing expenses, including mortgage payments or rent, as well as property taxes and utilities, at 30% of monthly income.
While mortgage interest rates fell to historic lows at the beginning of the COVID-19 pandemic, they came roaring back in 2022, topping 7% and marking the highest rate in 20 years, according to The New York Times. As a result, today’s new homeowners face substantially higher monthly mortgage payments than those who acted prior to the rate hikes, despite rates somewhat cooling at the beginning of this year.
When soaring inflation and stagnant wages are factored in, Americans are trillions more in debt than they were prior to the pandemic. With more monthly income being put toward higher housing costs, U.S. homeowners are spending less and saving less for emergencies.
It isn’t just homeowners who are feeling the squeeze, either. Rents are being driven up by increasing housing costs, leaving renters increasingly strapped for cash as well.
The number of cost-burdened homeowners in the United States had been declining in recent years, falling from 29.4% in 2015 to 26.5% in 2019, the Times reported. However, those gains have been largely wiped out by the effects of the pandemic.
In Los Angeles, where almost half of homeowners are considered house poor, the number of cost-burdened homeowners fell 4 percentage points between 2015 and 2019 but is again on the rise. The situation is similar in New York City, where the 41.3% of house-poor homeowners in 2019 climbed to more than 45% in 2021, according to the Times.
A recent Gallup poll shows that Americans have collectively had a big change of heart when it comes to buying a house, with just 21% saying that now is a good time to buy.
That’s the lowest homebuyer sentiment since Gallup began asking the question in 1978, but is hardly surprising given that 30-year mortgages now average 6.58%, and the median home price in the U.S. is $436,800, compared to $329,000 pre-pandemic.
“The sad reality is that homeownership is the best path to generational wealth building for families, and this is now something that is in jeopardy throughout the majority of the U.S.,” Maureen McDermut, a broker with Sotheby’s International-Santa Barbara, said. “Some relief needs to be brought to the market.”
Battling persistent inflation, the Federal Reserve has increased interest rates every month since March 2022; the U.S. central bank is now signaling that a break is on the way.
“That could signal some relief, at least for new homeowners,” Collin Czarnecki, a researcher at Chamber of Commerce, told the Times.
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