If you’re curious why so many Americans fell behind on their mortgage payments, you need to look beyond the mortgage itself.
Between 1996 and 2006, all major categories of homeowner expenses increased faster than related incomes, according to a new report from the Center for Housing Policy.
In the new study titled, “Stretched Thin: The Impact of Rising Housing Expenses on America’s Owners and Renters,” the group found that mortgage payments increased 46 percent, utilities 43 percent, property taxes 66 percent, and property insurance 83 percent.
During the same time period, homeowner income only increased by 36.3 percent, putting considerable strain on mortgage-holders over the last decade (debt-to-income ratio).
“Housing expenses increased by an average of $5,314 or 64.9 percent over the study period, substantially more than other major expenses such as food at $1,412 or 30.1 percent, transportation at $2,126 or 33.3 percent, and even outpacing healthcare at $996 or 56.3 percent. Median incomes rose 35.8 percent over the same period,” the report said.
That may explain why mortgage lenders chose to increasingly offer loan programs that reduced monthly payments and offset principal payments, while banking on rapid appreciation to mask any worry of default.
But when home prices peaked, and then began their precipitous fall, it left many with little or no home equity (thanks to all the cash out during those low-interest rate days), which is why we’re seeing so many underwater borrowers nowadays.
Renters aren’t exempt from the pain either, with rents increasing 51 percent between 1996 and 2006, while renter incomes only increased 31.4 percent.
Sprinkle on top of it rising energy costs, including the costs to heat the home and purchase gas, and you’ve got a big problem, one looser underwriting guidelines won’t solve.
Nearly one in six households, or nine million homeowners, and nine million renters spent more than half their income on housing costs in 2006, far above the 30 percent threshold typically deemed affordable.
Prices must come down.