Here’s a shocker… Housing in 2008 was less affordable than in 2007, by one important measure. The government defines affordable housing (either renting or owning) as paying less than 30% of your pre-tax income for shelter. In 2008, 600,000 additional people (from 2007) met this criteria of paying more for housing. Unexpected.
Huh?
- Rents and Home Prices are Less Affordable! (Kevin Dooley)
Think about that for a second… housing prices have gone down through this recession, but people are finding themselves in more expensive (relative to before) living situations. The government’s official ‘All Transaction’ housing price index is down 4% from Q2 2008 through Q2 2009. This should mean that housing is more affordable (although it doesn’t account for rent). Even more surprising is the USA Today article, quoting the National Association of Realtors, lists the total peak to now drop in housing prices as 20%.
Embedded in a close-by paragraph is the likely cause for the seeming weirdness. There were 148,000 less homeowners in 2008 than 2007. Also, there were 900,000 new people added to the renter rolls. 601,000 renters moved from affordable housing to unaffordable housing, which makes up almost all of the people who fell into that category.
Other than that, data is as you’d expect (the more things change…). California and Florida lead the list for housing unaffordability. Also no surprise: those two states had greater than 10% unemployment rates: 12.2% and 10.7%, respectively. The nationwide unemployment rate is 9.7%.
What to Learn?
Really, the 30% of income, pre-tax is a good rule of thumb for renting or buying. Your calculations do change based on tax, however. In Florida, because there is no income tax, you can afford more house (or rental unit) compared to California with its 9.55% top income tax rates. You should factor in your personal situation when deciding how much to spend on housing.
Housing is an important consideration- before you put into effect any of the other suggestions on this website you need a place to stay. Since housing is such a large amount of your paycheck, it’s important to have your finger on the pulse of the market (for housing and rent) in order to know what you should be spending. Once you figure out hour housing you can move onto other priorities… like retirement savings.
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