Housing costs punish family budgets

— -- 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.

Drew expects the number of financially squeezed homeowners to continue to rise, in part because millions of loans have adjustable rates that will rise this year and next, adding hundreds of dollars to monthly mortgage payments. At the same time, the slowdown in the real estate market and troubles in the mortgage industry will make it harder for homeowners to sell or refinance, because it's harder to get a loan now.

"It's amazing — you would think that declining house prices would offset (high housing costs)," but they don't, says Drew, who analyzed the census data for USA TODAY. Slipping home prices are "only beneficial to someone who is buying a house, and a small number of homeowners move or buy in any one year."

For businesses and city and state governments, a lack of affordable housing also creates pressure on hiring decisions, schools, taxes, suburban sprawl, congestion, pollution, emergency services and natural resources.

Though every state has a housing finance agency, usually to aid first-time buyers, and many cities and some large businesses have housing assistance programs, today's census data show how enormous the need is. In an analysis of the 100 largest metro areas, the most cash-strapped homeowners are, as expected, in California, Florida and New York City, where home prices have catapulted over the budgets of many. In nine metro areas, at least half the homeowners are spending 30% or more of their monthly income to keep a roof over their heads. But USA TODAY also interviewed homeowners in similar situations in low-cost metro areas such as Minneapolis and Nashville.

"We are not doing enough to offset the increase in unaffordability," Drew says. "These small, hard-fought victories (by some cities and businesses) are not enough to make a dent, particularly when you have affordability problems growing at the rate they have been."

Moving in with friends

At the top is Miami. There, more than one of every four homeowners with mortgages spends half or more of their income on housing. The demand for home-buyer subsidies "is unbelievable," says Patricia Braynon, director of the Miami-Dade County Housing Finance Authority. "Everybody's mad at me right now because we don't have enough money."

The county, which doles out nearly $15 million a year in financial aid to home buyers who make less than 140% of the area's median income, has enough money to help only about 200 families a year.

The shortage of affordable housing exerts a ripple effect through the economy. Employers have a harder time attracting workers, so they have to raise wages, then prices. Imagine trying to recruit a teacher or firefighter to work in the coastal area of Santa Barbara, Calif., where a median-price single-family home — half the homes cost more, half cost less — weighs in at $1.1 million.

Housing costs are "probably our No. 1 problem in recruiting faculty," says Patricia Sheppard, director of academic personnel for the University of California at Santa Barbara, where the average professor makes roughly $85,000 a year.

The university, which already offers a special mortgage program for staff members, next year will begin construction on 174 townhouses for faculty that will sell for about 30% below market rates, she says.

The crisis in California reflects another growing trend: the financial burden on moderate-income and more affluent households. Last year, 22% of U.S. households earning more than $50,000 a year spent at least 30% of their income on their mortgage, taxes and insurance, up from 18% in 2005.

Huyen Nguyen, a dentist in Monterey, Calif., has been house hunting but feels as if everything's beyond her price range. Nguyen, who sold her $300,000 home and dental practice in Oklahoma City last year, says similar property in her new area would cost about $1.5 million. "If I can't afford it," asks Nguyen, 54, "how can someone making minimum wage afford it?"

The short answer is, they can't. Nationwide, the greatest sacrifices for housing are still made by the lowest wage earners: 73% of households earning $50,000 or less spend more than 30% on housing, up from 69% in 2005.

Nearby, in the city of Salinas, most of the residents work in farm fields or in tourism, both low-paying jobs. Many families have few options but to move in with friends and relatives.

"You can go through practically any neighborhood in Salinas, and the evidence you can see is the number of cars on the street after five o'clock," says Dave Mora, city manager.

Overcrowded homes mean overcrowded schools, parks and roads.

"We've got to increase the inventory of housing," Mora says. The city has an expansion plan in the works that will require at least 20% of future homes to be affordably priced.

In Phoenix, the county has a program to help first-time home buyers, by providing up to 5% of the purchase price and a 30-year fixed-rate loan.

When Jeff Anspach tried to take advantage of the program this month, he was shocked to learn that the $200 million allocated to the program in March ran out last month — although county officials had expected it to last 12 months. Anspach had to borrow from his retirement account to come up with a down payment. Besides being excited about buying his first home, he also wants to cut down on his gas-guzzling 40-mile round-trip commute by moving closer to his job as an insurance agent.

Dealing with stress

Having found a home in foreclosure, he was able to get the price down to $225,000. But he's stressed, he says, because his payments, including homeowners association fees, will eat up more than half his income.

"I've been beating myself up over and over," says Anspach, 37. "Do I want to live paycheck to paycheck?"

The county government is now doubling the size of the home-buyer assistance program.

"Affordable housing has a stigma," says Marissa Trevino of the Phoenix Industrial Development Authority. "But young professionals need affordable housing, teachers need affordable housing, police officers need affordable housing. It goes back to the wage issue."