October 3, 2016
October 3, 2016
It’s not your imagination, Portland is increasingly becoming a city of renters.
The U.S. Homeownership rate in the second quarter of 2016 fell to its lowest level since 1965 – 62.9%.
Economists and pundits are split on the reasons why. Some argue that it is a lingering effect of the 2008 economic collapse, high student loan payments and increased debt for young people, and skyrocketing home prices. Others say these have no effect.
According to research published by the Federal Reserve Bank of Cleveland, the monthly debt burden for borrowers between the ages of 20 and 30 in the second quarter of 2015 was $351 a month, and three quarters of all 20- to 30-year-old borrowers have student loan payments of $400 or less. The study argues that as long as the debtor’s extra monthly income ($750) from having a college degree is higher than their monthly payments, then they are financially better off.
That’s not the real story. Mortgage lenders like a maximum debt to income ratio of 36%. That means that for every $1000 of income, no more than $360 goes towards credit card bills, car loans, child support, student loans and mortgage payments and other housing expenses.
An average Portland household with an income of $60,000 and no debt can qualify for a $303,000 home (accounting for taxes and insurance). The same household with $350 a month in consumer debt can purchase a $282,000 home, and the same household with $750 a month combined consumer and student loan debt can purchase a $239,000 home.
Seen many $239,000 homes in Portland lately?
The median Portland home price in August, 2016 was $353,000, and the average $400,100.
The income/affordability situation is similar in most of the U.S.
The argument that high student loan payments, increased debt for young people, and skyrocketing home prices have little to nothing to do with home ownership rates does not stand up.
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