A recent article by Mortgage News Daily shed a lot of light on the proportion of Americans spending too much money on housing – both homeowners and renters. Typically, the most financially sound way to pay for housing is to spend no more than 30% of monthly income. More than 30% is considered a cost-burdened household and more than 50% of monthly income is considered a severely cost burdened home with very little wiggle room for essential living expenses such as food, health care, and transport to pace of employment.
According to research in the ‘State of the Nation’s Housing’ report done by the Harvard Joint Center for Housing Studies, and estimate of 40.9 million households were cost-burdened in the year 2012, meaning that well over 13% of Americans were defined as cost-burdened as the U.S. Census reported the U.S. population in 2012 as 314,159,265. The report contends that over a third of U.S. individuals lived in cost-burdened households.
Mortgage News Daily continued to state, “Despite a drop of 1.7 million between 2011 and 2012, these households had increased by 9 million in the previous 10 years and, more disheartening, 5.8 million of this increase were severely cost-burdened households”. The figure below depicts the minor change.
*click to enlarge image
The figure above also shows that the slight dip overwhelmingly occurred in homeowner households versus renter households. The research delved further into the statistics to determine whether homeowners had more advantageous situations over renters – the outcome was astounding. Renters are far more likely to be in a cost-burdened household than homeowners, as the research deduced that “nearly half of all renters are considered cost-burdened and 17 percent are in the severe category”.
A huge contributing factor to this issue is has to do with income level and the cost of housing. Housing prices have increased significantly over the years, but these numbers have not been proportionate with income levels. Mortgage News Daily contends that housing costs “spiked by 15 percent between 2001 and 2007 and then began a steep decline as interest rate and home prices fell. By 2012 costs were early back to decade earlier levels but were offset by dwindling income levels”.
Additional surprising statistics revealed that income levels for homeowners were not ‘dwindling’ as much as it was for renters. See the figure below provided by the US Census Bureau that depicts the gap growing between renter income and housing costs:
*click to enlarge image
It is clear that there are two categories of people here: those who can afford to own a home, and those who cannot. The graph on the left depicts very high housing costs for homeowners on average, but these homeowners typically have enough income to support their high cost of living. On the other hand, the graph on the right depicts high housing costs for renters, but not nearly as high as the average housing cost for a homeowner. Even so, the cost of housing for renters is not as proportionate as it is for the homeowners. Instead, income for renters is declining while housing costs in rentals is climbing higher. Mortgage News Daily contends, “Median rental costs rose 4 percent between 2001 to 2007 but income fell by 8 percent and then lost another 8 percent by 2011. While there were income gains in 2011-12 the net loss in income was 13 percent over 11 years while median rent ($880) rose 4 percent”.
Again, if someone is cost-burdened or severely cost-burdened by housing, they will spend less on food and healthcare which ultimately leads to a more unhealthy lifestyle and means for some that they won’t go to the doctor for a problem until the problem gets so severe that they have to be rushed to the hospital and rack up an excessive bill for the hospital stay. Mortgage News Daily stated that “a 2012 study found that the most cost-burdened households spent an average of 39 percent less on food and 65 percent less on healthcare than families living in affordable housing”. Not only do these burdened households put health on the line, but they are also more likely to move to areas with higher crime, leading to loss or damage of assets and even endangering lives.
The moral of the story here is to get into a home that you own if you have the money to. Homeowners clearly have more stability and control over their costs than renters do. Many homeowners who don’t think they can even be considered in qualifying to buy a home at the moment are unaware of the options. It is worth speaking with a loan officer and determining the amount of home you can afford in your area and even what kind of savings that it would provide. For more information or to speak with a loan officer at Broadview Mortgage, call (714) 464-2945 or click here.