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Housing Eats Into Income

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The Associated Press

Published: October 12, 2008

LOS ANGELES - The financial squeeze on Americans got tighter over the past decade as housing expenses - everything from mortgage payments and rent, to utilities and insurance - far outpaced the growth in incomes, a new study shows.

Overall, yearly housing costs rose by an average of $5,314, or nearly 65 percent, between 1996 and 2006, according to the report released Wednesday by the Center for Housing Policy.

With so many families stretched thin by housing costs, they are even more likely to lock their credit cards in a drawer if they are nervous about falling stock prices or keeping their jobs. And that may make any economic recession even deeper.

"There are a lot of daily challenges that Americans are facing in meeting this full array of housing expenses and incomes just haven't risen as much to be able to allow people to afford it," said Maya Brennan, who co-authored the study. "Utilities especially are looking like they're going to go up since 2006."

In 2007, more than 7.5 million people - almost 15 percent of American homeowners with a mortgage - were spending half of their income or more just on their mortgage, property taxes and insurance, according to U.S. Census Bureau data released last month. That is up from nearly 7.1 million the year before, according to an analysis by The Associated Press.

19 Million Burdened

Traditionally, the government and most lenders considered a homeowner spending 30 percent or more of their income on housing to be financially burdened. But that definition now covers almost 38 percent of American homeowners with a mortgage - 19 million of them.

In a recent study, researchers calculated housing expenses by tallying mortgage or rent plus the cost of utilities, property taxes, insurance, maintenance and other costs between 1996 and 2006.

Telephone costs were seen as mostly discretionary and left out.

Homeowners, who often pay a wider variety of utilities than renters, saw their utility bills jump 43 percent, with fuel, oil and natural gas behind much of the increases.

The study found homeowners' housing expenses overall rose 66 percent, while renters' household expenses rose by 51 percent.

Incomes, however, did not begin to keep pace, climbing only 36.3 percent and 31.4 percent for homeowners and renters, respectively.

That's in contrast to the 1990s, when housing costs rose less rapidly than incomes, said Edward Wolff, professor of economics at New York University.

The median family income last year was below what it was in 2000, in part because wages, when adjusted for inflation, have declined, Wolff said.

Homeowners in Los Angeles earning the median income for the area needed to use nearly half of their income to pay for the median-priced home in 2006, according to the study. In Houston it was 19 percent.

Home Insurance's Big Blow

Still, Houston got hammered another way: Property insurance premiums rose 75 percent between 1996 and 2006, Brennan said.

Homeowner insurance jumped on average nearly 83 percent between 1995 and 2005, driven in part by rising construction costs and a spate of natural disasters.

Homeowners also got hit hard by property taxes, which jumped nearly 66 percent, the study said.

Renters, meanwhile, had to contend with higher monthly payments and utilities costs.

Apartment expenses ate up more than 29 percent of renters' income in 2006, up from almost 26 percent a decade earlier. Rental costs climbed 51 percent.

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