Housing costs punish family budgets

Housing costs devour a larger part of Americans' income, forcing cuts elsewhere.

ByABC News
September 12, 2007, 4:35 AM

— -- Sydney Lasry, a systems engineer, took a second job three years ago so he could afford to buy a $400,000 home in Severn, Md. His mortgage payment hasn't risen, but his property taxes have jumped by $1,000 since then, to $3,200 a year, and his home insurance has soared by $500, to $1,100.

Now, housing costs are devouring 70% of his gross income. And Lasry, 45, who's working as much overtime as he can, fears he won't be able to keep up. "People see me living in this nice house" but when Lasry eats out, "I eat at McDonald's," he says.

Look around. Thirty-seven percent of U.S. homeowners with mortgages are spending 30% or more of their before-tax income on housing the threshold where the government says a home becomes unaffordable according to 2006 Census data being released Wednesday. This compares with 27% in 2000, before the real estate boom drove the nation's median home price up more than 50%.

For some, the financial burden is far worse: 14% of homeowners with mortgages more than 7 million households shell out at least half their gross monthly income to cover their home loan, property taxes, insurance and utilities, up from 10% in 2000.

The new figures provide a striking look at how wages and salaries have failed to keep up with surging home prices. Behind those numbers lie the daily, difficult choices many families have to make about where they can afford to live, how far they have to commute, how many of their kids' ballgames they will miss and whether to take a second job. Will they have enough money for health care, movies and vacations?

"For a few months early this year, I was working a second job at Pizza Hut to pay off credit cards," said Douglas Plant, 21, a shop fabrication coordinator in Houston. "But I gave that up. It was just too hard."

That's because Plant, who bought his first home in December, is also getting his bachelor's degree in business at night at the University of Houston. Housing costs eat up slightly more than half his income. He, his wife and two kids follow a "strict budget" to pay their bills.

What was most surprising to Rachel Drew, research analyst at the Joint Center for Housing Studies at Harvard University, was a sharp rise in the number of financially strained homeowners from 2005 to 2006. In that one year, more than 1.5 million additional homeowners with mortgages began spending 30% or more of their income on housing, including 680,000 who are spending more than half.