American families losing financial security and freedom due to the unmanageable burdens and chronic stress from property ownership.

From: Eric Lau (Project Manager) & Paulo Pangilian (Project Manager)

Homeownership has been perceived by the public, and promoted by successive governments as a means of gaining control over one’s life and one’s future. However, should we truly consider homeownership as a benchmark for stability? According to the “How Housing Matters Survey,” 52 percent of Americans have made great sacrifices in order to cover their mortgage over the last 3 years. Financial security is essential when it comes to owning a home, however not everyone has the tools to properly assess their financial situation and its future.

When it comes to homeownership, many Americans aren’t provided the proper tools for assessing their situation. This may lead to compound financial stress, which can be caused by any sort of long-term liabilities such as student loans or adjustable-rate mortgages. Adjustable-rate mortgages or ARMs, lead to unsustainable payments for many middle to low-income class families. According to the study performed by Nettleton and Burrow, the rise in the numbers of people with mortgage arrears, and the number of people who have their homes possessed, will have an impact on all homeowners and not just on those who are in debt. It is imperative for prospective, tentative, and current homeowners to assess and prioritize their financial security in order to make the best decision to reduce compound financial stress.

The cost of owning a home in general has seen its ups and downs, but it continues to increase overall. Just in 2007, the amount of lower-income first-time homebuyers with serious cost burdens (defined as spending more than 50 percent of household disposable income on housing), has grown to greater than 20 percent, which significantly exceeds the 12 percent rate for all households. This was just in 2007, right before the crash of the housing market. Now that the market is on the rebound, we’ve seen housing prices go up once again. The inflation of the housing market leads to the possibility of future and current homeowners experiencing more financial difficulties. With the increase in prices, comes a decrease in widespread homeownership as well as a decrease in homeownership for specific demographics.

According to the United States Census Bureau, homeownership rates are the lowest among the younger population. In the second quarter of 2018, 36.5 percent of people under the age of 35 were homeowners. This number dramatically increases to 60 percent for people ages 35 to 44. It increases to 70 percent and above for people above the age of 45. This data demonstrates that homeownership rates are correlated with age. According to this data, the younger population is less financially secure than the older populations. We can assume that because the younger population has had less time spent in the workforce overall compared to the older population, there is less disposable income saved up, which means owning a home is less realistic. Dual incomes can help support a mortgage, and are more common in older ages as marriage and partnership become more prevalent. Dual incomes may be able to better support mortgage payments than a single income would, but is the net income of for example, you and your spouse, enough to realistically support all current and unforeseen payments? Does more than 30 percent of your disposable income go to paying off your home mortgage? If so, homeownership may not be the most financially secure option at this point in time. Selling your home and finding a more affordable situation may be beneficial. Some options include: Finding a more affordable home, Rent a new property instead of buying, and selling your home as-is.

The United States Census Bureau also found that in 2018, 50.2 percent of households have a family income that is less than median family income. A good portion of these households that are below median family income, are also families who are spending more than 30 percent of that income, on their home mortgages. These homeowners are more susceptible to unforeseen financial difficulties such as unemployment, sudden illness, or divorce. Having disposable income is key to not only preparing for the future but also to maintaining your current well-being.

Compound financial stress is something that should be avoided or mitigated at all costs and maintaining your financial security is key to compound financial stress avoidance. If you’re owning a home right now, consider how much its costing you not only financially but mentally, and emotionally. Financial security is essential when it comes to owning a home, however not everyone has the tools to properly assess their financial situation and its future.

1. “How Housing Matters Survey” - John D. and Catherine T. MacArthur Foundation & Hart Research Associates https://onlinelibrary.wiley.com/doi/epdf/10.1111/1467-9566.00127

2. Mortgage Debt, Insecure Home Ownership and Health: An Exploratory Analysis - Sarah Nettleton and Roger Burrows; Department of Social Policy and Social Work, University of York http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.477.3976&rep=rep1&type=pdf

3. Subprime Mortgages: America’s Latest Boom and Bust. - Gramlich, E. M. Washington, DC: Urban Institute Press. http://webarchive.urban.org/publications/211481.html

4. United States Census Bureau https://www.census.gov/housing/hvs/files/currenthvspress.pdf