A survey found that more than 40% of homeowners in the L.A. area have become so-called “house poor,” suffering the economic burden of spending nearly half of their income on housing and housing-related expenses. Analysts say that the sharp increase in housing-related costs caused soaring mortgage interest rates and prolonged inflation drove homeowners into the house poor.
The New York Times (NYT) reported on the 30th of last month, citing a report released by the US Chamber of Commerce. House poor refer to households that have high housing asset values but are facing economic difficulties because they cannot afford living expenses due to insufficient cash assets.
Homeowners are considered ‘House Poor’ if they must spend more than 30% of their income on their mortgage or house-related expenses.
A report by the US Chamber of Commerce found that more than 40 percent of homeowners in the Los Angeles area are house poor, making it the second-highest number of house poor homeowners out of the nation’s 170 densely populated cities surveyed.
In Los Angeles, the median annual income of homeowners is $122,032, and they spend $2,972 per month on housing-related expenses, and $35,664 on housing-related expenses over the year. More than 40% of homeowners in Los Angeles spend half their income on house expenses and mortgage payments. Housing-related expenses include mortgage payments, rent, property taxes, and utility bills.
The number of houses pours in nearly half of the Los Angeles area showed a 4-percentage point decrease from 2015 to 2019, before the pandemic, but it began to rise after the corona pandemic, and it was analysed that the rise has recently become steeper.
In contrast, 27 percent of homeowners across the country are house poor, about half that of the Los Angeles area. In 2015, the number of homeowners in the House Poor was 29.4%, and in 2019 it was down to 26.5%. During the pandemic, it rebounded as it turned upward again. The sharp rise in mortgage interest rates has been a factor in the increase in homeowners who have become house poor.
Even at the beginning of last year, the mortgage interest rate stayed in the 3% range, but exceeded the 7% range, peaking after 2002. Long-standing inflation is also contributing to the production of house pours. The consumer price index (COI) recorded 9.1% in June of last year and has been declining for 10 consecutive months, but it is still at a high level.
It is pointed out that real wages are reduced due to long-term inflation, and housing costs are acting as an economic burden along with rising debt. The question is the future direction of the federal benchmark interest rate. It was expected that the US central bank, the Federal Reserve, would freeze its benchmark interest rate as the CPI fell sharply to 4.9% in April.
However, with personal consumption expenditures (PCE) rising 4.4% year-on-year in April, and the prospect that the Fed may raise interest rates further, it is still too early to predict whether mortgage rates will decline, most experts say.