About 52% of US households make sacrifices to manage rents and mortgages over the last three years I had to. According to theHousing Surveyconducted by the MacArthur Foundation. The culprit isaffordable housing. House prices have risen by about 20% over the last two years, but wages have barely risen. Also, especially for young adults, the slow recovery of work makes it difficult to save down payments and buy mortgages
People can sacrifice for housing. Serious and includes earning additional income Jobs, not saving for retirement, reducing health care and health foods, running out of credit card debt, or having insecure neighborhoods or worse schools Move to a place.
Also, more and more people are skeptical when it comes to owning a home. About 43% of the people surveyed in the survey say that owning a home is no longer a good long-term investment and one of the best ways to build wealth. Over 50% say buying a home is no longer attractive.
One of the concerns of people with a long-term view is the bleak future of home prices. It does not signal future home prices, as today's historically low mortgage rates can only rise. Currently, the 64.8% home ownership rate has not been so low since the second quarter of 1995.
Affordable Ratio of Homes
To own a home, you have a large loan and responsibility to maintain your property. These obligations may require adjustments to your lifestyle, especially if you are renting.
The number of homes you can buy depends on the amount of money you have for your down payment and your income. Banks, mortgage lenders, and realtors will run your number and tell you the price of the house you can buy and the mortgage you can carry. Those estimates are usually based on the front-end to back-end ratio. The mechanism is as follows.
Front-end ratio: Housing costs, or front-end ratio, indicate how much of your total monthly income (before tax) is spent on mortgage payments. As a general guideline, monthly mortgage payments, including principal, interest, property taxes and homeowners insurance, should not exceed 28% of your total monthly income. To calculate the housing cost ratio, multiply your annual salary by 0.28 and then divide by 12. The answer is the monthly maximum housing cost ratio.
Backend Ratio: Total Debt to Revenue, or Backend Ratio, indicates how much of your total income will be spent on all debt, including mortgages, car loans, and child support. And alimony, credit card invoices, student loans and condo fees. In general, your total monthly debt should not exceed 36 percent of your total income. To calculate the debt-to-income ratio, multiply your annual salary by 0.36 and then divide by 12. The answer is the maximum monthly debt-to-income ratio.
Finally, take into account maintenance and repair costs before making a purchase. My rule is that the sum of all housing costs should not exceed 25 percent of your total income. Common sense is that about 25% of your total income goes to your household and about 25% goes to income tax (federal, state, social security), so only 50% of your income survives. For retirement, children's education and all other costs.
View all Ray Martin articles on CBS MoneyWatch »
Ray Martin has been a financial adviser and individual since 1986. He regularly appears as a contributor to the CBS Early Show, CBS NewsPath, and as a columnist on CBS Moneywatch.com and NBC-TV's morning newscast TODAY. He has also appeared at The Oprah Winfrey Show and is the author of two books.
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