1 in 4 Spend More Than Half of Income on Housing, Study Says

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home affordabilityIn the wake of the housing bust, almost 1 in 4 working families spend more than half their income on housing costs, according to a new study.

The study by the Center for Housing Policy found that both homeowners and renters continue to struggle with housing costs since the market tanked in 2008. Between 2008 and 2010, renters saw their median income decline even as housing costs rose, while homeowners' loss of income outpaced a modest drop in housing costs. Experts typically warn against using more than 30 percent of pretax income toward housing costs. (Read more about debt-to-income ratio here.)

In 2010, the latest year in which data was available, there were 10.6 million households with more than half their income going toward housing, including utilities. A total of 23.6 percent of working households fell into that precarious category -- up 1.8 percentage points from 2008. (The study defines working households as those that make less than 120 percent of an area's median income and work at least 20 hours a week.)

With prospective buyers finding it harder to qualify for a mortgage and job security remaining a top concern for many families, rental demand has surged in past years, driving up costs. For homebuyers who purchased risky loans with little equity at stake during the boom years, high interest and sliding home values have pushed thousands underwater, with insufficient savings to escape the cycle.

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10 Cities Getting Slammed by Foreclosures
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1 in 4 Spend More Than Half of Income on Housing, Study Says

Quarterly increase in foreclosures: +32%
# of Foreclosures Q3 2011: 2,273
Unemployment: 7.6%
% home value down from peak: -12.42%

Columbus hit its median home value peak in the first quarter of 2006. Since that time, home values have declined a relatively modest 12.4%, including a 3.4% drop last year. By the second quarter of 2012, Fiserv projects that homes in the area will lose another 2.3% of their value. Median family income in Columbus is above the national average, and unemployment is just 8%, a full percentage point less than the national average. Despite the fact that things don’t look so bad for the Columbus housing market compared to other regions, the city foreclosure rate still increased by 32% last quarter. A total of 2,273 homes were foreclosed upon during that time.

See foreclosed homes for sale in Columbus, Ohio

Quarterly increase in foreclosures: +35%
# of Foreclosures Q3 2011: 1,743
Unemployment: 11.2%
% home value down from peak: -59.3%

There is arguably no single housing market with a worse long-term outlook than southwest Florida, and the Cape Coral-Fort Myers region is the worst of these. Housing prices in the have already dropped 59.3% from their peak, and Fiserv project them to decline another 12.2% by the second quarter of next year. According to Corelogic, 47% of the homes in the Cape Coral-Fort Myers area are worth less than their mortgages because of declining values. Foreclosures have increased 35% in the last quarter, and with no sign of recovery in the immediate future that trend may worsen in the coming months.

See foreclosed homes for sale in Fort Myers, Fla.

Quarterly increase in foreclosures: +36%
# of Foreclosures Q3 2011: 1,348
Unemployment: 11%
% home value down from peak: -59.1%

As of last month, Vallejo-Fairfield had the second-highest foreclosure rate in the country, with one out of every 51 homes being foreclosed upon in the third quarter of this year. This was a 36% increase in foreclosures from the second quarter. Home values have dropped 7.5% in the past year and are projected by Fiserv to drop an additional 4.9% by the second quarter of 2012. A remarkable 53% of homes in the region are worth less than their mortgages. This is the seventh highest rate of homes with underwater mortgages in the country.

See foreclosed homes for sale in Fairfield, Calif.

Quarterly increase in foreclosures: +41%
# of Foreclosures Q3 2011: 2,174
Unemployment: 14.9%
% home value down from peak: -54%

Fresno’s economy has continued to suffer since housing prices began to drop in 2006. It currently has an unemployment rate of 14.9%, which is one of the highest in the country. Home prices peaked in the first quarter of 2006 and have been decreasing since. The metropolitan area also has one of the highest underwater mortgage rates in the country, with a negative equity share of nearly 46%. In the last year alone home prices have dropped 11%.

See foreclosed homes for sale in Fresno, Calif.

Quarterly increase in foreclosures: +44%
# of Foreclosures Q3 2011: 1,039
Unemployment: 11.6%
% home value down from peak: -53.4%

More than 1,000 homes were foreclosed upon in the Palm Bay-Melbourne-Titusville region last quarter, a 44% increase from the previous three-month period. Nearly half of the region’s homes are worth less than their mortgages. With Fiserv projecting home values would drop 7.1% by next year and another 4.9% the year after that, things may just get even worse.

See foreclosed homes for sale in Titusville, Fla.

Quarterly increase in foreclosures: +49%
# of Foreclosures Q3 2011: 2,559
Unemployment: 9.5%
% home value down from peak: -39.3%

Jacksonville has experienced a quarterly increase in foreclosures of nearly 50%. Home prices have dropped 39.1% since their peak in the second quarter of 2006. The metropolitan area’s negative equity share also exceeds 46%, making it among the worst in the country for underwater mortgages. Home prices are expected to decrease another 10.7% by the second quarter of 2012.

See foreclosed homes for sale in Jacksonville, Fla.

Quarterly increase in foreclosures: +55%
# of Foreclosures Q3 2011: 1,956
Unemployment: 8.7%
% home value down from peak: -15.9%

Nearly 2,000 homes were foreclosed upon during the last quarter, a 55% increase from the previous three months. Unlike many of the regions on this list with accelerating home foreclures, Cincinnati’s local economy is doing fairly well. Home prices are only down 15.9% from their peak in the first quarter of 2006. Unemployment and median family income are both better than average. One possible explanation for this recent increase may be that nearly a third of the total decline in home value since the peak has occurred in the past 12 months.

See foreclosed homes for sale in Cincinnati, Ohio

Quarterly increase in foreclosures: +57%
# of Foreclosures Q3 2011: 1,673
Unemployment: 11%
% home value down from peak: -51.4%

The Sarasota-Bradenton-Venice metropolitan area has seen the third largest increase in the country in foreclosures in the third quarter. However, only 1,673 homes out of the 311,475 on the market were foreclosed upon. The housing market has suffered a great deal since housing prices peaked in the first quarter of 2006. Since then, overall home prices have dropped 51.4%.

See foreclosed homes for sale in Venice, Fla.

Quarterly increase in foreclosures: +67%
# of Foreclosures Q3 2011: 2,003
Unemployment: 6.6%
% home value down from peak: -15.8%

The Boston metropolitan area is considered to have a particularly resilient housing market. In the most recent quarter, however, foreclosures have increased 67%. Home prices have only dropped 15.8% since they peaked in the third quarter of 2005. The national average is -32.3%. From the second quarter of 2010 to the second quarter of 2011, home prices dropped a mere 1.7%.

See foreclosed homes for sale in Boston, Mass

Quarterly increase in foreclosures: +151%
# of Foreclosures Q3 2011: 1,358
Unemployment: 6.9%
% home value down from peak: -14.9%

Albuquerque’s housing market, like Boston’s, is relatively healthy. While home prices decreased 32.3% nationally after their peak, home prices in Albuquerque only decreased 14.9% since they peaked. Regardless, foreclosures have recently skyrocketed. In the third quarter of 2011, the number of foreclosures in Albuquerque increased 151%. According to New Mexico Business Weekly, the lack of job creation in the area has been a major contributor to this problem.

See foreclosed homes for sale in Albuquerque, N.M.

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"The data show that homeowners have been hit hard by the housing crisis in more ways than just lost equity," said Jeffrey Lubell, executive director at the Center for Housing Policy, in a statement. "Many working homeowners have been laid off or had their hours cut."

Homeowners felt the pinch of diminishing salaries more acutely than renters, dropping to a median of $41,413 in 2010, down from $43,570 in 2008. Working renters, on the other hand, typically make less, with a median income of $30,229 in 2010.

Unsurprisingly, the groups that were most at risk of having a severe housing cost burden made less than 80 percent of their area's median income, whereas wealthier households held steady over the 2-year period.

Where Housing Hurts Most

Between 2008 and 2010, affordability has significantly declined in 24 states. The five states with the highest share of households spending more than half their incomes on housing were California (34 percent), Florida (33 percent), New Jersey (32 percent), Hawaii (30 percent) and Nevada (29 percent).

With several experts predicting that the $25 billion mortgage settlement with the nation's largest banks will lead to more foreclosures at the start of 2012, both renters and owners should brace for more price fluctuation in their local markets, at least in the short term.

That said, the group most affected by the price confusion are those who bought during the height of the housing bubble, prior to 2008. For those entering the market today, however, sinking prices and near-record low mortgage rates places home affordability at a 20-year high.

Also see:
Black Borrowers Face Higher Hurdles in Lending, Study Shows

How the Foreclosure Settlement Could Affect You

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