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Statistics Support That We Are a House Poor Nation

By Erik Folgate

USA Today has an article about homeowners who are paying more than 30% and more than 50% of their household income towards their mortgage. Here are the statistics from the Joint Center of Housing Studies at Harvard University.

Homeowners with mortgages spending at least 30% of income on housing:

  • 2000: 27%
  • 2005: 35%
  • 2007: 37%

Homeowners with mortgages spending at least 50% of income on housing:

  • 2000: 10%
  • 2005: 13%
  • 2007: 14%

The statistics say it all. We’ve either become more greedy when buying a house, or our incomes are not going up as fast as the housing market is going up. I think it’s a combination of both. The housing boom from 2002 to 2005 has much to do with why these percentages are rising. People in California, Florida, and New York are not necessarily buying 4,000 square feet houses on a 50k income. They are buying $400,000, 3/2, 2,000 square feet houses. The price of starter homes has risen, but the idea that homeownership is a GREAT thing has not gone away. What happens is that young people continue to buy houses when they really cannot afford it. I’m not saying that you should not strive to be a homeowner, but you must be more patient these days if you want to avoid being house poor.

If you are sitting at the 30% mark for your mortgage payment as a percentage of your income, then you will probably be okay. But if you are in the 50% range, you need to do something fast. Either find a way to increase your household income or sell your house. You will not be able to sustain this type of lifestyle for long. I know a few people that have gone through foreclosure, and it is painful. Compound that with having kids to think about, and you’re looking at quite a mess.

The solution: Home prices are not going to start drastically dropping. The inflated home prices have gradually gone down in the last 18 months, but they will never go back to the level they were in the 90′s. The only thing we can do to help prevent from being house poor is increasing our household income and saving more money. Ask for a promotion or raise, start a side business for extra income, or create a situation where both you and your spouse can work. Start saving a bigger down payment. Renting is not a bad thing if you know it’s temporary. We may need to start saving a 30 to 40% down payment before we can buy a house. You may have house fever, but if you buy a house that you can afford, you’ll live a much happier life. You don’t want to be sweating out if you’ll be able to pay your house payment every month. That is the one bill that you want to be stable every month. These solutions are not the easy, quick-fix that people want to hear, but they work.

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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  • http://www.moneyclipped.com/ Nivek

    I live in a part of the country where house prices are still very reasonable and yet half the people I know are living in way more house than they can really afford. I can’t understand why so many people are willing to spend 40%-50% of their income for a house that’s newer and/or bigger than what they need. The houses don’t make them happy. All they do is complain about being broke all the time bacause their mortgage payments are so high.

  • author

    It’s not worth it. Owning a house can be a huge burden if you buy more house than you can afford. So many young poeple are pressured into buying a house, because it’s the “mature and responsible thing to do”. Yeah, it’s a great financial move to make if you can AFFORD IT! And not only afford the payment, but afford to maintain the home. You can’t be living paycheck to paycheck while owning a home, because the water heater will break and the A/C will go out in the middle of the summer. I hope that more young people realize that they need to be patient when buying a home.

  • http://www.forestcotton.blogspot.com/ Jim

    Its certainly true that many home owners are house poor they have placed all of their life savings in their home oh home sweet home.

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