MNeagle
2nd October 2010, 07:24 PM
41.7 million: U.S. households who face excessive housing costs
In the conventional narrative of the recession and recovery, one bright spot has been the speed with which U.S. households are shedding their debts and getting their finances back in order.
The latest data from the Census Bureau, though, offer a less encouraging picture: Even as the average household debt burden improves, an increasing number of households are finding themselves financially stretched.
http://s.wsj.net/public/resources/images/OB-KH360_number_D_20101001151912.jpg
As of 2009, some 41.7 million U.S. households, or 36.7% of the total, faced housing costs that exceeded 30% of their pretax income — a level typically defined as the threshold of affordability. That’s an increase of 1.5 million from 2007, despite a sharp drop in house prices and policy makers’ extraordinary efforts to bring down mortgage payments.
At first glance, the numbers seem incongruous. By most measures economists and policy makers follow, U.S. households’ finances are getting better. Their debt burden, expressed as mortgage and consumer debt outstanding as a share of disposable income, has been falling ever since September 2007, from a peak of 130% to 119% in June 2010. Over the same period, payments on that debt have decreased from 18.9% to 17.0% of disposable income — the lowest level since 1998. To be sure, much of the improvement is coming as a result of defaults, but it still suggests consumers are getting in a better position to start spending again.
Such measures of household finances, though, are akin to the average temperature in a hospital — they don’t tell you how many people are really ailing. According to the American Community Survey for 2009, released earlier this week, the ranks of the financially ill are growing, at least in terms of the share of the population that is paying too much for housing. That’s particularly unfortunate given the fact that the housing bust, for all the pain it inflicted, should at least have made it cheaper to put a roof over one’s head.
Consider homeowners. Their position should have improved sharply as mortgage rates fell and new owners snapped up foreclosed homes with smaller mortgages. But as of 2009, some 31.0% of homeowners were shelling out more than 30% of their income to cover housing costs. That’s down only slightly from 31.1% in 2007. Given the size of the sample, one can’t be sure a change occurred at all.
http://s.wsj.net/public/resources/images/OB-KH355_number_E_20101001151202.jpg
Renters were worse off, and played a bigger role as more people lost their homes and became tenants. While the glut of houses in places such as California and Florida allowed many defaulters to rent luxurious homes for a fraction of their previous mortgage payments, the shift of people from homeowners to renters helped keep rents rising across the country. As a result, in 2009 some 47.7% of renters faced excessive housing costs, up from 45.6% in 2007.
The social picture is more troubling. Most of the stress is falling on the growing group of households with lower incomes, who were briefly lifted by subprime lending but now face a tough situation. If they’re still homeowners, they probably can’t take advantage of lower interest rates by refinancing their mortgages, given their low incomes and banks’ renewed interest in lending standards. If they default and become renters, they have even less control over their housing costs.
What this all means for consumer spending and the recovery is less clear. Higher-income households account for most of the country’s spending power, and they are actually doing better. The share of excessively burdened people with incomes of $75,000 or more fell to 11.7% in 2009, from a peak of 12.4% in 2008. So it’s possible wealthier folks could drive the recovery, but some 26 million lower-income households will struggle to make the monthly nut.
http://blogs.wsj.com/economics/2010/10/02/number-of-the-week-417-million-spend-too-much-on-housing/
In the conventional narrative of the recession and recovery, one bright spot has been the speed with which U.S. households are shedding their debts and getting their finances back in order.
The latest data from the Census Bureau, though, offer a less encouraging picture: Even as the average household debt burden improves, an increasing number of households are finding themselves financially stretched.
http://s.wsj.net/public/resources/images/OB-KH360_number_D_20101001151912.jpg
As of 2009, some 41.7 million U.S. households, or 36.7% of the total, faced housing costs that exceeded 30% of their pretax income — a level typically defined as the threshold of affordability. That’s an increase of 1.5 million from 2007, despite a sharp drop in house prices and policy makers’ extraordinary efforts to bring down mortgage payments.
At first glance, the numbers seem incongruous. By most measures economists and policy makers follow, U.S. households’ finances are getting better. Their debt burden, expressed as mortgage and consumer debt outstanding as a share of disposable income, has been falling ever since September 2007, from a peak of 130% to 119% in June 2010. Over the same period, payments on that debt have decreased from 18.9% to 17.0% of disposable income — the lowest level since 1998. To be sure, much of the improvement is coming as a result of defaults, but it still suggests consumers are getting in a better position to start spending again.
Such measures of household finances, though, are akin to the average temperature in a hospital — they don’t tell you how many people are really ailing. According to the American Community Survey for 2009, released earlier this week, the ranks of the financially ill are growing, at least in terms of the share of the population that is paying too much for housing. That’s particularly unfortunate given the fact that the housing bust, for all the pain it inflicted, should at least have made it cheaper to put a roof over one’s head.
Consider homeowners. Their position should have improved sharply as mortgage rates fell and new owners snapped up foreclosed homes with smaller mortgages. But as of 2009, some 31.0% of homeowners were shelling out more than 30% of their income to cover housing costs. That’s down only slightly from 31.1% in 2007. Given the size of the sample, one can’t be sure a change occurred at all.
http://s.wsj.net/public/resources/images/OB-KH355_number_E_20101001151202.jpg
Renters were worse off, and played a bigger role as more people lost their homes and became tenants. While the glut of houses in places such as California and Florida allowed many defaulters to rent luxurious homes for a fraction of their previous mortgage payments, the shift of people from homeowners to renters helped keep rents rising across the country. As a result, in 2009 some 47.7% of renters faced excessive housing costs, up from 45.6% in 2007.
The social picture is more troubling. Most of the stress is falling on the growing group of households with lower incomes, who were briefly lifted by subprime lending but now face a tough situation. If they’re still homeowners, they probably can’t take advantage of lower interest rates by refinancing their mortgages, given their low incomes and banks’ renewed interest in lending standards. If they default and become renters, they have even less control over their housing costs.
What this all means for consumer spending and the recovery is less clear. Higher-income households account for most of the country’s spending power, and they are actually doing better. The share of excessively burdened people with incomes of $75,000 or more fell to 11.7% in 2009, from a peak of 12.4% in 2008. So it’s possible wealthier folks could drive the recovery, but some 26 million lower-income households will struggle to make the monthly nut.
http://blogs.wsj.com/economics/2010/10/02/number-of-the-week-417-million-spend-too-much-on-housing/