Staggering 38 million Americans cost burdened by their homes

The term “cost burdened” is used to describe households that spend more than 30% of their income on housing costs. This includes mortgages and other associated housing costs which are taking a larger bite out of household incomes than ever before. For those who are being forced to spend more on their housing costs this leaves less for the necessities such as food, clothing, medical care, transportation, etc. So, what impact will this have on the US housing market?

Sharp rise in cost burdened families

Without any figures to compare against it is difficult to appreciate the massive rise in the number of cost burdened families struggling to pay their housing costs. This figure stood at 16 million back in 2001 and increased to a staggering 38 million in 2015. The figure was even worse in 2014 at 38.9 million although the 900,000 reduction was welcomed! However, there are serious concerns that the figure could rise again in 2016 and beyond.

Interest rate rises

At this moment in time recent US interest rate rises have had little impact upon the mortgage rate but eventually this will come. When you bear in mind that some households are spending more than 30% of their income on housing costs during the current “historic low interest rate environment” what impact will there be when interest rates return to traditional levels?

The US government will need to address this issue sooner rather than later because significant financial assistance will be required. The alternatives are:-

Low economic growth

It goes without saying if housing costs are increasing at a faster rate than household incomes then more and more household income will be spent on housing cost. Aside from the fact this will leave less money to spend on necessities it will have a growing impact upon US economic growth. When you consider we are talking about 38 million people who are currently “struggling” to make ends meet, how high might this figure go without any meaningful assistance from the government?

The census data, from which this information was compiled, shows that low-income groups have been hardest hit. As governments around the world continue to tackle the expanding welfare system and associated costs, we can only expect the situation to get worse for low-income families in the foreseeable future.

Lower end properties

There is a growing concern that while the higher end of the property market seems to be performing relatively well, the worsening situation towards the lower end is receiving little in the way of publicity. Experts are highlighting the state of so-called “entry-level houses” many of which are in disrepair and in need of significant investment. They also point to the fact that some stock at the lower end of the market is “still underwater” as a consequence of the 2007/8 mortgage crisis and resulting economic downturn.

Property prices

Over the last couple of years we have seen an encouraging recovery in headline property prices across the USA. The real test will come as interest rates continue to tick higher which will eventually hit mortgage rates and housing cost expenditure. As with other countries such as the UK at least a percentage of the increase in US property prices can be put down to a lack of suitable stock. For some reason potential sellers around the world appear reluctant to list their properties which is causing more competition for those properties which are listed.

It is all getting extremely complicated both in the US real estate market and others such as the UK. A lack of suitable stock would appear to be supporting prices not to mention historic low interest rates and finance costs. The real test will come once rates return to “more traditional levels” but that could still be many years off. Enough time for action to help cost burdened families struggling to afford their homes and buy everyday essentials?

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