More than 1 in 4 American homeowners ‘house poor’
MORE than one-quarter of homeowners in the US are “house poor”, spending more than 30 per cent of their income on housing costs, according to a new study.
Chamber of Commerce, a product research company for real estate agents and entrepreneurs, used numbers from the US Census Bureau to analyse monthly housing costs and median household income in the 170 most populated US cities. The company found that 27.4 per cent of all homeowners are “cost-burdened” in its study.
Miami, Los Angeles and New York City have the highest number of “house poor” residents, with more than four in 10 homeowners feeling stretched beyond their means by their housing bills. And except for New York City, the top 10 cities in the United States for cost-burdened homeowners are all located in either California or Florida.
Mortgage interest rates, which dipped to historic lows at the beginning of the pandemic, climbed past 7 per cent in 2022 – the highest since 2002. Although rates cooled slightly in the early months of 2023, new homeowners today are still saddled with significantly higher monthly mortgage payments than neighbours who locked in a lower rate.
Add skyrocketing inflation and stagnating wages into the pot, and Americans owe trillions more than they did at the start of the pandemic. Higher housing costs means less set aside for savings, spending and emergencies.
It is not just homeowners being squeezed, either. Rising housing costs push up rents as well, meaning both renters and homeowners are feeling strapped.
The “30 per cent rule” is a long-time piece of personal finance gospel that advises keeping all housing expenses, including rent or mortgage payments, property taxes and utilities, from cutting into more than 30 per cent of one’s monthly income.
From 2015 to 2019, the percentage of US homeowners who were considered financially strapped dropped each year, from 29.4 per cent in 2015 to 26.5 per cent in 2019. But the pandemic has now started to erase those gains.
Los Angeles and New York mirror that national trend. In Los Angeles, where nearly half of homeowners are currently “house poor”, the number of cash-strapped owners dropped 4 percentage points between 2015 and 2019 but is now climbing again. The same goes for New York City, where in 2021, more than 45 per cent of homeowners were “house poor”, up from 41.3 per cent in 2019.
Miami, however, bucked the trend: The percentage of house-poor homeowners there was 44.6 per cent in 2021, down 2.5 percentage points from 2019.
The Federal Reserve, fighting an uphill battle against inflation, has increased interest rates every month since March 2022. And while it does not set mortgage rates, many home loans are tethered to their actions.
America’s central bank is now signalling that after nearly a year of consecutive rate increases, a break is on the horizon.
“That could signal some relief, at least for new homeowners,” said Collin Czarnecki, a researcher at Chamber of Commerce.
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