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1 in 4 middle-class Americans are falling into this dangerous housing trap — here’s how to sidestep it ASAP

Updated: 24-10-2024, 12.41 PM

Americans are becoming all too familiar with the phrase “house rich, cash poor,” as a growing number of middle-class adults report spending more than 30% of their income on housing costs.

With rising home prices, stagnating wages, and relatively high mortgage rates, that once-reliable housing benchmark is becoming harder to maintain.

In 2022, nearly three in 10 middle-class homeowners spent more than 30% of their income on housing, according to NBC News’ analysis of U.S. Census data.

That’s more than double the rate from 2013, and reduces the ability to cover essentials such as food and emergency savings while also stifling long-term financial growth.

The Department of Housing and Urban Development has long defined this group of homeowners as “cost-burdened,” and the 30% rule — an idea more than 40 years old — once seemed like an easy-to-follow goal for containing costs.

But today’s economic climate raises a question: is it time to revise the 30% guideline?

It’s important to remember that the “30% rule” includes more than a mortgage payment. It also takes into account property taxes, insurance, and utilities.

This measure is important because, while inflation may be cooling, home prices remain high across the country, and everyday costs of groceries and other essentials remain elevated.

That leaves less room in a family’s budget for essentials like healthcare, savings, and discretionary spending. It doesn’t help that wages haven’t kept up with rising home prices.

Middle-class incomes have only modestly increased, meaning that homeownership is eating up a larger share of monthly budgets.

This is especially problematic in high-cost areas such as California and New York, where even moderate-income households are being priced out of the market.

Additionally, interest rates have climbed from historic lows, making new mortgages significantly more expensive.

Rates for 30-year mortgages still hover between 6% and 7%, adding hundreds of dollars to monthly mortgage payments. New homeowners are facing higher-than-expected costs from the moment they move in.

Lower-income households have long faced difficulties affording housing, with many spending well over 30% of their income on rent or mortgages.

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