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Roughly 50 Percent of Americans Cannot Afford Their Homes

03/23/2015

Millions of families in the United States cannot afford their homes. Affordability is based on the percentage of rent or mortgage that consumes household income. The level at which someone cannot afford a home is 30 percent, which is reported to affect 35.3 percent of US families.

In order to make rent or mortgage payments throughout the past three years, roughly 52 percent of Americans sacrificed one major thing, at minimum. Examples of the type of sacrifices that people have been forced to make include:

  • Working more than one job
  • Making major cuts on healthcare
  • Increasing credit card debt
  • Dipping into retirement savings
  • Moving to a higher-crime neighborhood or one with poorly rated schools

A recent study on housing affordability was commissioned by the John D and Catherine T MacArthur Foundation, conducted by Hart Research Associates, and released in a publication titled, “How Housing Matters Survey”.

The Issue of Affordability

As stated by chief economist at the National Association of Realtors, Lawrence Yun, affordability a major hurdle for people to overcome. In the past two years, the price of homes has climbed 20 percent. While improvement in wages has been seen, it is not enough.

Yun strongly believes the only way to calm home prices is by adding additional new supply in the form of housing starts. Over the past 50 years, housing construction has averaged about 1.5 million annually, which dropped significantly last year.

In addition, about 15 percent of people who own homes live in housing markets where over 30 percent of the monthly median household income is needed to make the monthly mortgage payment.

Fortunately, interest rates on mortgages remain low for now and while strides have been made in loosening lending practices and new down payment programs have been created by both Freddie Mac and Fannie Mae, these along with poor credit scores remain serious issues, especially for younger homebuyers.

For Generation Y, consisting of people born in the 1980s and 1990s, it has been extremely hard to save money needed to purchase a home because of slow job market recovery. The economy has also begun to strengthen but at this point, about 84 percent of younger people have put major life decisions on hold, one being the decision to purchase a home.

More than 40 percent of people who responded to the “How Housing Matters Survey” felt that being a homeowner was no longer a good investment long-term or one of the better methods of building assets and wealth. In fact, more than 50 percent of people surveyed said there was less appeal in buying a home even though over 70 percent of renters still want to become homeowners.

Positive Perspective

Even with affordability being a big issue for a large number of people, millions of homeowners have been able to pull out of negative equity thanks to rising prices. Since hitting rock bottom during the housing market crash, an increase in home prices has added some $4 trillion to housing equity specifically for people who currently own homes, those who are in a position to afford to buy, and wise investors. 

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