More Than 1 in 4 American Homeowners Is ‘House Poor’

THe New York Times

More Than 1 in 4 American Homeowners Is ‘House Poor’

Debra Kamin – May 30, 2023

More Than 1 in 4 American Homeowners Is ‘House Poor’

More than one-quarter of homeowners in the United States are “house poor,” spending more than 30% 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 U.S. Census Bureau to analyze monthly housing costs and median household income in the 170 most populated U.S. cities. The company found that 27.4% 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 4 in 10 homeowners in each city feeling stretched beyond their means by their housing bills. And with the exception of New York City, the top 10 cities in the United States for cost-burdened homeowners are all located in either California or Florida.

Why it matters: Housing costs are on the rise nationwide.

Mortgage interest rates, which dipped to historic lows at the beginning of the pandemic, climbed past 7% in 2022 — the highest numbers seen since 2002. And although rates slightly cooled in the early months of 2023, new homeowners today are still saddled with significantly higher monthly mortgage payments than neighbors 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’s not just homeowners being squeezed, either: Rising housing costs push up rents as well, meaning both renters and homeowners are feeling strapped.

Background: The number of cost-burdened homeowners had been on the decline.

The “30% rule” is a longtime 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% of your monthly income.

From 2015 to 2019, the percentage of U.S. homeowners who were considered financially strapped dropped each year, from 29.4% in 2015 to 26.5% 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% of homeowners were house poor, up from 41.3% in 2019.

Miami, however, bucked the trend: The percentage of house-poor homeowners there was 44.6% in 2021, down 2 1/2 points from 2019.

What’s next: Federal interest rates might offer relief.

The Federal Reserve, fighting an uphill battle against inflation, has increased interest rates every month since March 2022. And while the Fed does not set mortgage rates, many home loans are tethered to their actions.

America’s central bank is now signaling 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.

Author: John Hanno

Born and raised in Chicago, Illinois. Bogan High School. Worked in Alaska after the earthquake. Joined U.S. Army at 17. Sergeant, B Battery, 3rd Battalion, 84th Artillery, 7th Army. Member of 12 different unions, including 4 different locals of the I.B.E.W. Worked for fortune 50, 100 and 200 companies as an industrial electrician, electrical/electronic technician.