The ever-rising rental and mortgage costs of housing are putting a financial stranglehold on more Americans than ever.
Per Harvard University’s Joint Center for Housing Studies Annual Housing Report, almost 39 million U.S. households cannot afford the place they call home. While financial professionals typically advise allocating no more than 30% of one’s monthly income to pay the rent or mortgage, millions of Americans are substantially exceeding that percentage.
In 2015, a full 1/3 of households were spending 30% or more of their incomes on these basic housing costs. Amazingly, nearly 19 million are paying more than 50%, a 3.7 million increase from 2001.
The usual result of this over allocation of available funds is sacrifices on other necessities, such as food, health care and transportation. The cutbacks vary depending on household members. With older adults, healthcare typically becomes the victim.
If there are children, food often becomes shortchanged. Figures from 2015 show almost 25 million children fell in this category, with low income families that are paying more than half their incomes to cover housing cutting back the most; spending less than $300 per month on food while low income households that are not burdened with this excessive housing cost spend about $500.
“To make ends meet, these families often do not buy enough food for their households or they substitute cheaper but less nutritious foods, either of which can jeopardize their children’s health and development,” the report stated.
Low-income households are also more likely to compromise on the quality of housing, including living in homes with structural or other unsafe/hazardous conditions. In addition, low residential inventory has pushed up prices as many markets struggle with a supply and demand imbalance. Bidding wars are not uncommon; making matters that much worse.
HOW DID THIS HOUSING FINANCIAL MESS OCCUR?
The 2007 housing debacle caused home prices to drop like a stone, but they have been on the upswing and last year surpassed their pre-recession peak. These price increases have closed out many buyers, who have been forced to become (or remain) renters instead. Following standard economic theorem, as this demand for rentals has outstripped supply, prices have risen dramatically.
Report findings also showed that Miami has the highest percentage of cost-burdened renters (nearly 62%), followed by Los Angeles and Deltona-Daytona Beach, Florida (57%).
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