Posted on Sat, Oct. 11, 2008
Adjustable-rate mortgages and exotic borrowing schemes that were used to lure people into buying houses they couldn't afford aren't the only reason many homeowners have lost their homes.
High mortgages may be the main culprit for the high volume of foreclosures we're seeing. Those costs, however, have been exacerbated by other mounting expenses also associated with home ownership.
The bills to stay in a house have kept growing while people's salaries have seen little or no increase.
That situation has been outlined in a new report from the Center for Housing Policy, the research affiliate of the National Housing Conference. The study points out that between 1996 and 2006, every major category of homeowner expenses rose faster than people's incomes.
The list includes mortgage payments, up 46 percent; utilities, 43 percent; property taxes, 66 percent; homeowners insurance, 83 percent.
These housing expenses collectively increased 66 percent in the 10-year period. Compare that with the 36-percent increase in homeowner incomes over that same time, and you see another dimension to the nation's high foreclosure rate.
The portion of homeowners' income spent on housing expenses grew to 26 percent in 2006, compared with 21 percent in 1996. Real estate salespeople are quick to say a family can afford to spend 30 percent of its income on housing. But nearly a sixth of all households were spending half their income on a place to stay in 2006.
The costs of home ownership can be broken down further. In the utilities category, the Center for Housing Policy says the price of home heating oil increased 131 percent in the 10 years studied. The price of natural gas doubled during that period. Only electricity prices remained relatively stable.
With so many Americans opting for suburban living, you can't ignore transportation costs when calculating homeowner expenses. It's important that gasoline prices have nearly tripled in just the last six years, from about $1.38 per gallon in 2002 to $4.05 per gallon in 2008 - though prices have come down a bit lately.
The center makes some recommendations to reduce housing costs, among them building more energy-efficient structures and putting them closer to public transit. But it will take time for these ideas related to new construction to have any impact. In the meantime, families will struggle to afford their homes.
The outlook is not good for them. Wall Street hasn't responded to passage of the $700 billion bailout, and it will take a while before its provisions to bolster the housing market are implemented. Consumers' confidence is shot, so they're not buying anything. Stores with stagnant inventories are laying people off.
And the beat goes on.
It's an economic crisis with roots in the price of a mortgage. But as the center's report shows, the costs of utility bills, property taxes and homeowners insurance have also made owning a house unaffordable for millions of Americans.
Developing policies to address those costs is as important as the bailout.
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