Millions spend half of income on housing

[almaty 19]

MIAMI - Al Ray is so strapped for cash, the only time he eats out is on Wednesday or Sunday, when the local McDonald's sells hamburgers for 49 cents.

Ray lost his engineering job last November, and has been working as high school tutor, scratching out about $1,000 a month — if he's lucky. He struggled to make his $1,400 monthly mortgage payment and $330 monthly homeowners' association fee until May, when he stopped paying.

Ray, 44, is looking for work and renting out a room in his two-bedroom condo in Davie, Fla., for $500, but his monthly income doesn't match his expenses and he's facing foreclosure.

"I barely have money to survive," he said.

Ray is one of more than 7.5 million people — almost 15 percent of American homeowners with a mortgage — who are spending half of their income or more on housing costs, according to 2007 data released Tuesday by the U.S. Census Bureau. That is up from nearly 7.1 million the year before.

Traditionally, the government and most lenders consider a homeowner spending 30 percent or more of their income on housing costs to be financially burdened. But that definition now covers almost 38 percent of American homeowners with a mortgage — 19 million of them.

Though home prices have fallen this year, in the most expensive markets where home prices tripled during the boom, many working families still cannot afford to buy a home.

"We had a bubble," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. "This is a case where we absolutely want the market to adjust."

The data underscore the serious affordability problems in this country and highlight how the slightest financial problem — from a lost job to higher gas prices or insurance premiums — can put a family behind on their mortgages and into the realm of foreclosure.

When home prices fell in the early 1990s, borrowers had more equity in their homes, and were able to escape foreclosure. But now, an estimated 10 million homeowners owe more on their mortgages than their homes are worth, according to Moody's economy.com.

More than 4 million homeowners were at least one month behind on their loans at the end of June, and almost 500,000 had started the foreclosure process, according to the Mortgage Bankers Association.

Cascading foreclosures over the past two years created a domino effect in the lending industry, undermining investor confidence and forcing the Bush administration last weekend to announce the greatest rescue package and market intervention since the Great Depression.

And yet, the deal will not help Dolly Hanna, 51, and her husband, who bought five homes in the San Francisco area over the past 20 years, and were enjoying life during the housing boom by renting them out.

But her husband's overtime at his mechanic's job was cut, and the Hannas now find themselves overextended at a loss of $15,000 per month and trying two sell two of the homes.

With four children, Hanna had been a stay-at-home mom, but Monday she started a job in real estate. They are seeking a renter for two upstairs bedrooms in their primary residence for $1,200.

Getting a loan during the boom was easy, Hanna knows. Too easy.

"All you had to was massage the information enough to fit it into their round hole, and they gave us a mortgage," Hanna said.

In San Francisco, more than one out of five homeowners with a mortgage spends half or more of their income on housing.

That's also true in 13 more of the largest 100 metro areas analyzed by the Associated Press. Other places include California metro areas of Stockton, Los Angeles, Riverside, Oxnard-Thousand Oaks, San Francisco, and San Diego. Also in the top 10 are the Fort Myers, Sarasota and Orlando metro areas in Florida, and New York-Northern New Jersey-Long Island.

But the most cost-burdened homeowners in the country live the Miami-Fort Lauderdale-Miami Beach metro area: 58 percent of homeowners spending 30 percent of their income on housing costs, and 29 percent spending half of their income or more on housing.

Though prices here are dropping, the high cost of land, construction, insurance and property taxes makes living in South Florida too expensive for some.

"Certainly, we hear about people leaving South Florida and going into Atlanta where they can get into a house for less money," Suzanne Weiss, associate director for real estate with Neighborhood Housing Services of South Florida.

To help with the affordable housing stock, Neighborhood Housing Services of South Florida joined forces with a construction company to build homes for low- to moderate-income residents that include energy-efficient appliances and hurricane-resistant windows.

Other cities and states are also taking action.

In Illinois, a network of 15 nonprofit housing groups gives free advice to struggling homeowners seeking to avoid foreclosure amid rising mortgage payments.

In New England, an affordable housing program funded by the Federal Home Loan Bank of Boston awards grants and low-interest loans to communities to encourage affordable-housing initiatives for very low- to moderate-income households.

And in Las Vegas, the Nevada Fair Housing Center is helping Rita Harvey renegotiate her mortgage from $2,700 to around $1,800 per month.

Harvey, 64, lives on about $3,300 a month in social security and disability payments for herself and her four disabled grandchildren. She nearly lost her home this summer after her adjustable rate mortgage payment jumped.

"I did not understand that in two years, this would adjust out of control," she said. "Nobody deserves what I've had to go through."

[HAL 9000 96]

I remember when the norm was supposed to be 25% of your income in housing... my how times have changed.

[Jenn! 918]

Is that 30% rule of your gross or net income? if it's gross, that's really a lot. I don't see how we would get by if we were paying that much.

As it is, I can't see us buying a house any time in the near future.

[Mononoke28 135]

Poor people. I really feel for them.

Diana

[almaty 19]

i was lucky and we own our house outright and have 1 year left on the hosue next door...

[Mononoke28 135]

Ok, now stop it Mr. Trump.

Diana

[HAL 9000 96]

Ok, now stop it Mr. Trump.

Diana

Shhh or you will be fired.

[w¡n9Nµ7 §£@¥€r 123]

Most commonly accepted rule I've heard is two-fold: 28% of pre-tax income but total debt (incl. auto etc) should be no more than 36% of pre-tax income.

And yeah I used to pay about 1/2 back in 2003. Now it's much more manageable.

Edited September 23, 2008 by A.J.

[JelloShotGirl 0]

i spend about half my income on housing, gasoline and the rest on starbucks!

[almaty 19]

Ok, now stop it Mr. Trump.

Diana

not me sister diana..sanita bought the house we live in..paid cash..so much for the poor immigrants coming to america for riches

[LuckyDucky 0]

Between the mortgage payment, homeowner's association, and property tax, I pay 35% of my gross income. It's definitely over half of my take-home. I just got promoted, too, so last year was even worse.

It's tough, but I can't complain. I'm building equity in my home. The house's value hasn't dropped too much since it's peak and I'm still ahead of what I paid for it. *knock on wood* I can't buy all the nice goodies I want (or more specifically, all the nice goodies my wife wants), but we make do.

[w¡n9Nµ7 §£@¥€r 123]

The house's value hasn't dropped too much since it's peak ...

Where are you?

[SpiritAlight 1]

I believe the rule to live comfortably is indeed to spend only 25% on your income on rent/mortgage payments per month.

However the working class has never had this luxury.

Not here in the U.S. nor in Canada.

Two rich countries with so many "poor" people.

How many of us are one pay-cheque from losing home?

I had found ways to live for many years that was "free"...not for the feint of heart.

Ha!

Living on boats, house-sitting, working on said boats, etc. On and off, and no fixed address for over a decade.

Hey, I miss it, hahaha.

However, I am digressing...as usual.

So if anyone thinks that CAN/US way of living is good, what with the highest level of debt (credit cards and mortgages, other bills, etc.), we need a wake-up pill!

[TayRivers 4]

Wow If we were to spend just 25% of my gross earnings on housing I would have to be paying about $833 per month, Here in the North East you cant rent a 1 bed appartment for that.

[greeneyedgirlfl 0]

Living in one of those top 10 cities (Orlando) can sometimes be an exercise in futility. My housing costs are about half of my monthly take-home income; my husband would love to contribute to the household income, but the job market has bottomed out here as well (even entry-level jobs).

We're getting by, but most of our income is for necessities; we are definitely two paychecks from being homeless...thank goodness my parents live in the same town!