Home truths: How higher costs are reshaping America’s finances

You don’t need us to tell you: housing is expensive these days. Just ask the millennials (and every generation since) who have found out the hard way.

With expensive real estate now just seen as a fact of life, many of us have been left considering our options if we want to buy a home. Should we stay at home to spend less money, move in with our parents to save for a down payment, or take on a side hustle in order to afford a mortgage?

But with borrowing costs at recent highs, is it time we thought more creatively about meeting our housing needs? As specialists in new construction homes, we certainly have our ideas. But we always like to know what others think too.

That’s why we spoke to 2,000 Americans of different generations to find out their views on housing affordability. Here’s what they told us…

The squeeze: how housing costs are hitting America’s finances
For plenty of us, the past few years have delivered a double whammy on the finance front. Not only has inflation left us spending more of our paycheck on gas and groceries, but higher borrowing costs have driven up the amount we spend on our mortgages too.

How well are homebuyers coping with the squeeze? For a start, many are spending a larger portion of their paycheck on housing costs.

Asked how much of their monthly income was swallowed up by their mortgage, 1 in 5 respondents said they were shelling out more than one third of their income to pay for the roof above their heads. This is roughly in line with what we would expect. However, almost 1 in 10 were now spending more than 50% of their paycheck on their mortgage, putting them firmly in the ‘at risk’ category.

There is not doubt then: Americans are clearly feeling the burden of housing affordability. But how was that affecting the rest of their finances and lifestyle?

When we asked respondents whether they were taking steps to make their mortgage more affordable, we received a whole range of answers. But most boiled down to one thing: cutting spending elsewhere.

The most common casualty was leisure spending, with 36% of respondents (in a multiple choice question) saying they were cutting back on things like eating out or going to the movies.

Meanwhile, 20% said they had stopped traveling, 18% had cut back on grocery shopping, and 7% were spending less on healthcare.

Elsewhere, 32% of respondents said they were working more hours or had taken on a second job (i.e. a side gig), while 11% were relying on money that they would have preferred to save for retirement.

And high housing costs are having another big consequence for how we live our lives – and in particular for our personal relationships.

Asked what would happen to their financial situation if they became single, 36% of respondents said they would be unable to afford their housing costs in such a situation.

That might not be a problem if you’re happily married. But it creates a rather unfortunate predicament for those who aren’t so lucky.

Home economics: what do Americans think about housing costs?

Plenty of people will tell you that housing is too expensive. But do they agree on just how much your typical family home should cost?
To find out, we asked our respondents what they considered an acceptable price for a single family home. Their answers may surprise you…

By a decent margin, the most popular choice turned out to be the cheapest option. Not a surprise. Overall, 58% of respondents felt that a single family home should cost less than $250,000. With the national average income for a household hovering around $70,000, a $250,000 home would make homeownership a possibility for a significantly larger number of American households.

From there, our data followed a clear pattern, with the number of positive responses dropping off quickly as the prices got higher.

With the average house price now over $400,000 (and significantly more in states like New York and California), more Americans may find they have to adjust their expectations on housing.

What might that mean in practice? When we gave our respondents a range of different options to get a cheaper house – including some quite dramatic ones – they told us the following.

58% of respondents (in a multiple choice question) said they would be willing to compromise when it came to size, and make do with a smaller house.
Meanwhile, 31% of respondents said they would be happy to put up with a longer commute (at least 45 minutes), while 26% were prepared to buy a home that needed some renovation work.
28% said they would be happy to live next door to a cemetery, while 12% said they would consider a house with a nasty history if it meant saving money on the purchase.

Still, even faced with all those different options, 1 in 6 Americans said they weren’t willing to make any sacrifices when it came to finding the right home to buy. Might that mean ending up disappointed? Based on our survey, it looks like some Americans might be adjusting their expectations for that very outcome.

When asked if they felt confident they would one day be able to purchase their dream home, less than half (43%) of respondents answered in the affirmative.
By contrast, 21% said they weren’t sure, and 36% said they didn’t expect to be able to fulfill their dreams of home ownership.

It’s a tough picture. And a reminder of the need for all of us to think more creatively about housing solutions.

Methodology: To create this study, researchers from NewHomesMate surveyed 2,000 US adults aged over 18 years old. The study includes participants of all genders.