Yesterday, we told you about Interest.com’s recent finding regarding consumers’ difficulty to afford the cost of home ownership. Their report found that a median-income household can only afford a median-priced home in 10 of the 25 largest U.S. metropolitan areas. We reached out to Interest.com Managing Editor Mike Sante for more on this study and his opinion on the future of home ownership affordability.
BlackEnterprise.com: What prompted Interest.com to conduct this study?
Mike Sante: Interest.com is all about helping families build financial security, and for most of us, owning a home is part of that effort. But over the past 30 years housing prices have risen far faster than household income, making it more difficult for middle class families to buy their first home and begin building equity in real estate. We wanted to quantify just how affordable—or unaffordable—homes have become in the nation’s 25 largest cities.
BlackEnterprise.com: Why are homes so unaffordable for most Americans?
Sante: Over the past several decades home prices have risen far faster than middle class incomes. As a result, families have had to devote a greater and greater share of their paychecks to keep a roof over their heads. Ideally, you shouldn’t have to spend more than 30% of your gross (pretax) income on housing. In the least affordable cities families must often dedicate half, or even more than half, of their income to housing.
BlackEnterprise.com: Do you think this trend will improve or continue to get worse?
Sante: Every indication is that this trend will continue to get worse. Over the past year, for example, home prices rose 6% in the 25 largest cities while median household income only rose by about 2%.
Black Enterprise.com: Is there a solution? How can Americans become homeowners on a tight budget?
Sante: We’ve got to tackle this problem from both directions. Middle income workers need bigger, more significant raises than they’ve received over the past several decades. State and local governments must encourage the construction of more housing that’s within the financial grasp of middle class families.
BlackEnterprise.com: What tips do you have on saving up for a down payment?
Sante: If you want to find an additional $200 or $300 a month to save for a down payment, look no further than your car payments. If you’re spending $500 or $600 a month on loan payments and insurance, you’re probably spending too much. You can drive a very nice car or truck for half that much and free up hundreds of dollars a month to save and invest in your future. And the real savings comes when you get your ride paid off and have all of the money you’ve been spending on car payments available to save. That’s why it’s very important to avoid long car loans that require you to make payments for five, six or even seven years. Buy a car or truck that you can easily pay off in no more than four years.
For the first part of this story, see the article Home Ownership Out of Reach for Many Americans.