The State of Middle-Class Homebuying in the United States
The share of middle-class Americans who are buying homes with wallet-squeezing mortgages has more than doubled in the previous 10 years. A recent analysis of Census Bureau data by NBC News found that almost 30% of middle-class homeowners bought homes with monthly payments costing more than 30% of their income in 2022, compared to 15% from 2013.
A Cost-Burdened Nation
The “cost-burdened” benchmark, in which a household devotes over 30% of its income to housing costs, is a widely used measure of affordability for both homeownership and renting. The Census Bureau measures housing costs against this benchmark, and the Department of Housing and Urban Development has used it for decades.
“Housing used to be much more affordable for the median-income household,” said Domonic Purviance, a housing expert at the Atlanta Federal Reserve. “That’s not the case anymore.”
A Record of Cost Burdens
The Williams family, consisting of Haley and Ben, purchased a home in Elkhart, Indiana, in December 2022 for $265,000. Their mortgage rate was 8.125%, above the roughly 7% national average, and their monthly costs included spending $176 on the principal and more than $2,000 on interest, taxes, and insurance.
“We went for a house we knew would be difficult moving forward,” Ben said. “We have our son and are looking to expand our family… The alternative was continuing to live in a rental with a mold problem that cost $900 a month, a place we were ‘so desperate’ to get out of.”
A Growing Trend
Elkhart is not an outlier. In more than 30% of U.S. counties tracked by the NBC News Home Buyer Index, average-income house hunters presented with a median-priced home would end up in cost-burdened territory. This reality has left many middle-class families sitting on the sidelines, with households accounting for 49.7% of new homebuyers in 2022, down from 60.1% in 2010.
Experts Weigh In
“Record home price growth was one driver of cost burdens, but also rising property taxes and insurance premiums have combined with high interest rates to create punishing pressure, even as many Americans are earning more money,” said Daniel McCue, a senior research associate at Harvard University’s Joint Center for Housing Studies.
“All these costs are exposing who’s on the margins in terms of paying for their homes,” McCue added. “You look at households earning less than $30,000 a year – it was something like 95% of older adults were cost-burdened.”
Conclusion
The current state of middle-class homebuying in the United States is a concerning trend. With housing costs rising faster than income, many households are forced to make difficult decisions about how to allocate their limited resources. The result is a growing number of cost-burdened households, leaving many on the sidelines of the housing market.
FAQs
Q: What is the “cost-burdened” benchmark?
A: The “cost-burdened” benchmark is a widely used measure of affordability for both homeownership and renting, in which a household devotes over 30% of its income to housing costs.
Q: How has the share of middle-class Americans buying homes with wallet-squeezing mortgages changed over the past 10 years?
A: The share has more than doubled, from 15% in 2013 to 30% in 2022.
Q: Which households are most affected by cost burdens?
A: Lower-income households, single parents, and households from diverse racial and ethnic backgrounds are disproportionately affected by cost burdens.
Q: What are some adjustments that cost-burdened households must make?
A: Cost-burdened households may need to make difficult choices about home maintenance, leading to unhealthy or unsafe living environments, and may struggle to keep up with other expenses.
