Middle-Income Families Squeezed by Housing Costs

By Andrea Coombes

Americans are seriously indebted, largely because the cost of housing has increased, according to a new study by the Center for American Progress, a liberal think-tank in Washington D.C.

Middle-income families feel the most pressure, devoting a median 20 percent of their income to debt payments in 2004 – even though interest rates were low. Overall, middle-income people owe a median 114 percent of income.

Compared with the 1970s, when a typical family spent only half its earnings on big fixed expenses like mortgage payments, today's family is much more squeezed, says Elizabeth Warren, a professor at Harvard University .

"A generation later, the two-income family is making much more money but that money is divided differently," she says. "Today's two-income family doesn't need 52 paychecks to make the mortgage payment. It needs 104 paychecks to make the mortgage payment. If either mom or dad gets laid off, they're out of luck," she says.

Warren predicts that foreclosures will triple from 2005 to 1.2 million this year. She partially blames reduced mortgage lending standards that are “full of tricks and traps."

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