A new study from the Harvard Joint Center for Housing Studies reveals that one out of every four American renters—10.1 million households in total—spends more than half of its income on rent and utilities. Another 26.2% spends between 30% and 50% of household income on rent and utilities.
For years, the prudent approach has been to try to spend no more than 25% or 30% of household income on housing. But following that advice has proved difficult, especially over the last few years. What we have, according to the study, are widespread “affordability problems” for renters:
“In the last decade, rental housing affordability problems went through the roof,” said Eric S. Belsky, Managing Director of the Harvard Joint Center for Housing Studies and an author of the study. “And these affordability problems are marching up the income scale. In real terms, it means more people have less money to spend on household necessities such as food, health care, or savings.”
This is unfortunate, and not only because food prices are on the rise and health care costs have been soaring for years.
Homeownership is the obvious alternative to renting, but in recent times owning has become more nightmare than dream for many. Beyond the problem of plunging home values, which have forced millions of homeowners carefully consider strategically defaulting on their mortgages, a new survey shows that many owners and would-be buyers are fairly clueless about exactly how mortgages work.
In the survey, from Zillow.com, home buyers were wrong nearly half the time (46%) when answering basic questions about mortgage info. More than half (57%) of would-be buyers don’t understand how adjustable rate mortgages work, and 44% of those surveyed said (understandably so) that they were not confident in their knowledge of the mortgage process, or mortgages in general.
While mortgages are certainly confusing, an earlier survey, from LendingTree.com, makes the case that home buyers don’t do as much research as they should. In fact, consumers typically shop around more when purchasing a computer (researching 3.1 models) than they do mortgages (2.4 loan quotes). Also:
10 percent of people said they spent the same amount of time mortgage shopping as brushing their teeth, and 11 percent likened mortgage shopping to the amount of time it takes to walk a dog.
MORE:
Homeownership Study: Renting Often a Better Choice Financially
How Homeownership Is Like Marriage