Housing costs: Half your income?

By The Associated Press

Al Ray of Davie, Fla., is so strapped that the only times he eats out are Wednesdays or Sundays, when the local McDonald's sells hamburgers for 49 cents.

Ray lost his engineering job in November and has been working as a high school tutor, scratching out about $1,000 a month -- if he's lucky. He struggled to make his $1,400 monthly mortgage payment and $330 monthly homeowners-association fee until May, when he stopped paying.

Ray, 44, is looking for work and renting out a room in his two-bedroom condo for $500, but his monthly income doesn't match his expenses, and he's facing foreclosure.

"I barely have money to survive," he said.

Ray is one of more than 7.5 million people -- almost 15% of American homeowners with a mortgage -- who are spending half of their income or more on housing costs, according to 2007 data released this week by the U.S. Census Bureau. That is up from nearly 7.1 million the year before.

Traditionally, the government and most lenders consider a homeowner who spends 30% or more of his or her income on housing costs to be financially burdened. But that definition now covers almost 38% of U.S. homeowners with a mortgage -- 19 million of them.

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Though home prices have fallen this year, in the most expensive markets -- where home prices tripled during the boom -- many working families still cannot afford to buy a home.

"We had a bubble," said Dean Baker, a co-director of the Center for Economic and Policy Research in Washington, D.C. "This is a case where we absolutely want the market to adjust."

The data underscore serious affordability problems across the country and highlight how the slightest financial problem -- from a job loss to higher gas prices or insurance premiums -- can leave a family behind on its mortgage and entering the realm of foreclosure.

When home prices fell in the early 1990s, borrowers generally had more equity in their homes, and most were able to escape foreclosure. But now an estimated 10 million homeowners owe more on their mortgages than their homes are worth, according to Moody's Economy.com.

More than 4 million homeowners were at least one month behind on their loans at the end of June, and almost 500,000 had started the foreclosure process, according to the Mortgage Bankers Association.

Cascading foreclosures in the past two years have created a domino effect in the lending industry, undermining investor confidence and forcing the Bush administration to propose the greatest rescue package and market intervention since the Great Depression.

Yet the deal will not help Dolly Hanna, 51, and her husband, who bought five homes in the San Francisco area over the past 20 years and were enjoying life during the housing boom by renting them out.

But her husband's overtime hours at his mechanic's job were cut, and the Hannas now find themselves overextended and losing $15,000 a month. They are trying to sell two of the homes.

With four children, Dolly Hanna had been a stay-at-home mom, but she recently started a job in real estate. The Hannas are also seeking a renter for two upstairs bedrooms in their primary residence for $1,200.

Getting a loan during the boom was easy, the Hannas know. Too easy.

"All you had to do was massage the information enough to fit it into their round hole, and they gave us a mortgage," Dolly Hanna said.

San Francisco is among 14 cities where at least 20% of homeowners with a mortgage spend half or more of their incomes on housing, an Associated Press analysis of the 100 largest U.S. metro areas has found.

Other such cities include the California metro areas of Stockton, Los Angeles, Riverside, Oxnard-Thousand Oaks and San Diego. Also in the top 10 are the Fort Myers, Sarasota and Orlando areas in Florida, and New York-Northern New Jersey-Long Island.

Wanted: Affordable housing

But the most cost-burdened homeowners in the country live in the Miami-Fort Lauderdale-Miami Beach area: 58% of homeowners there spend 30% of their income on housing costs, and 29% spend half of their income or more on housing.

Though prices there are dropping, the high costs of land, construction, insurance and property taxes combine to make living in South Florida too expensive for many.

"Certainly, we hear about people leaving South Florida and going into Atlanta, where they can get into a house for less money," said Suzanne Weiss, the associate director for real estate with Neighborhood Housing Services of South Florida.

To help increase the availability of affordable housing, Weiss' organization has joined with a construction company to build homes for low- to moderate-income residents that include energy-efficient appliances and hurricane-resistant windows.

Other cities and states are also taking action.

In Illinois, a network of 15 nonprofit housing groups gives free advice to struggling homeowners seeking to avoid foreclosure in the face of rising mortgage payments.

In New England, an affordable-housing program funded by the Federal Home Loan Bank of Boston awards grants and low-interest loans to communities to encourage affordable-housing initiatives for low- to moderate-income households.

And in Las Vegas, the Nevada Fair Housing Center is aiding people such as Rita Harvey, who got help renegotiating her mortgage from $2,700 per month to about $1,800.

Harvey, 64, lives on about $3,300 a month in Social Security and disability payments for herself and her four disabled grandchildren. She nearly lost her home this summer after her adjustable-rate mortgage payment jumped.

"I did not understand that in two years, this would adjust out of control," she said. "Nobody deserves what I've had to go through."

Burdened by house payments*

Rank	State	%	Rank	State	%
1	California	53.0	26	New Mexico	34.0
2	Nevada	49.0	27	Montana	33.6
3	Florida	48.9	28	Utah	33.5
4	New Jersey	46.1	28	Wisconsin	33.5
5	Hawaii	45.8	30	Idaho	33.1
6	Rhode Island	42.3	31	Pennsylvania	32.9
7	New York	41.5	32	Mississippi	32.6
8	Massachusetts	41.3	33	Texas	31.9
9	Oregon	40.8	34	Tennessee	31.5
10	Washington	40.6	35	South Carolina	31.3
11	New Hampshire	40.5	36	North Carolina	30.7
12	Connecticut	40.3	36	Ohio	30.7
13	Arizona	39.5	38	Louisiana	29.6
13	Vermont	39.5	39	Alabama	29.1
15	District of Columbia	38.7	39	Missouri	29.1
15	Illinois	38.7	41	Kentucky	27.0
17	Colorado	37.9	42	Indiana	26.9
17	Maryland	37.9	42	Nebraska	26.9
	United States	37.5	44	Arkansas	26.5
19	Michigan	36.3	45	Oklahoma	26.2
20	Delaware	35.9	46	South Dakota	25.8
21	Virginia	35.5	47	Kansas	25.7
22	Maine	35.4	48	West Virginia	25.5
23	Alaska	34.9	49	Iowa	25.3
24	Georgia	34.6	50	Wyoming	24.4
24	Minnesota	34.6	51	North Dakota	21.4

* "Burdened" is defined as spending 30% or more of income on housing costs.