HUD defines a cost-burdened family as “those who pay more than 30% of their income for housing.” Naturally in those situations, the families struggle to afford other necessities such as food, clothing and medical care.
According to a recent study, the number of cost-burdened households is on the decline. Only 20.9% of homeowners with a mortgage were cost-burdened as of 2018, marking a 28.8% decrease from just a decade earlier.
A decline of any amount should be looked at as a great trend, as fewer families are struggling financially. However, those numbers are a little deceiving.
One reason for the recent decrease: fewer people are actually owning homes. No mortgage, no cost-burden, right? In 2009, the homeownership rate across the board was 67.9%. Now? It’s at 64.8% – a near-5% decrease.
They have instead turned to the rental market, which has correlated to the country’s largest rental population ever. Unfortunately, though, renting has not been the solution that they had been seeking.
Across the board, rent costs have been rising. Measured in July 2019, costs were up 2.9% year-over-year, with higher increases in coastal states.
The Census Bureau estimated that 40.6% of renters still spent 35% or more of their monthly income on rent and utility costs – making them cost-burdened.
While that percentage is roughly the same as it was in 2008, it represent a significantly higher number of individuals due to the current size of the country’s rental population.
This cycle signals a troubling future for the housing market, as cost-burdened renters now have a harder time putting money away at the end of the month to save for a home purchase in the future.
What Can Realtors® Provide?
The main takeaway from this data is that more consumer education is needed in the realm of mortgage and financial planning. Buyers and renters alike need to be consulted not only on what they can technically “afford,” but also how that monthly payment will affect their other financial goals, such as saving for the future.
For renters, more education is also needed on mortgage loan types in general. We have heard countless times from first-time buyers that their hesitations lie in the down payment. That “they don’t have the 20% that is required.”
Imagine their change of tune when they come to find out about loan offerings that only require 5%, 3.5% or even no money down. That completely changes the perspective on their available options and can help break the cycle of cost-burdened renters.
With our team, we can help you get that message across through written content, video, buyer seminars, and ultimately pre-approval strategy meetings where we meet with the client and find a solution customized to their situation.
*Not intended as credit counseling, accounting or investment advice. Contact your financial representative for more information. Down payment and terms shown are for informational purposes only and are not intended as an advertisement or commitment to lend.
Passy, Jacob. “Fewer Homeowners Are Burdened by Housing Costs-but There’s a Big Catch>.” Real Estate News and Advice | Realtor.com®, Realtor.com, 6 Nov. 2019, https://www.realtor. com/news/real-estate-news/fewer-homeowners-are-burdened-by-housing-costs-but-theres-a-big-catch/.
Welborn, Seth. “Renters Versus Homeowners: Housing Cost Burden.” DSNews, 11 Nov. 2019, https://dsnews. com/daily-dose/11-11-2019/renters-versus-homeowners-housing-cost-burden.