Can You Afford To Buy?

The housing boom in the US has benefitted some; it has hurt others. Those of us who own homes have often seen a rapid increase in their value. However, it has also strained household budgets to buy these more expensive homes. Nearly a third of American households spend more than 30% of their income on housing, and more than one in eight households spend more than 50%, according to the Joint Center for Housing Studies at Harvard University. That puts families in risky financial positions, if anything happens to family finances.

To cope with this kind of financial pressure, people are increasingly "moving out" -- as in, moving to the suburbs. You pay less for housing, but then must pay high costs to commute. A third of all households in the Boston area are at least 30 miles from the central business district, according to a Harvard study, and about a fifth live 40 or more miles out. This eats up time with family and spouses, and increases stress, as well as costing a lot of money. The impact on the environment can be substantial also.

Then there are the people who have been completely excluded from the market. For people with modest incomes, housing has soared out of reach in some areas. The California Association of Realtors estimates that only 15% of households in that state earn enough to buy a median-priced home, currently costing about $544,000, without spending more than 30% of their income on mortgage payments, real-estate taxes and home insurance.

Given that interest rates have gone up, we can expect these financial challenges to continue.

Ultimately, the instability around us means that buying is a confidence game. Be sure that you are confident that you can afford the home you buy, and will be able to afford the payments. Your confidence can minimize risk. And buying a little less than you can afford can give you some needed breathing room. The house of your dreams may take more than one purchase, or may mean some renovations, but you can do it without having to put yourself under excess financial stress if you plan your moves.

Michael

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