It’s no secret that even though the economy is recovering many Americans remain strapped for cash. Living costs are on the rise while wages remain stagnant, forcing families with median incomes to do more with less in order to maintain their lifestyle. This is what economists refer to as “the middle class squeeze”. This phrase captures the financial pressure felt by those with stagnant incomes in the face of higher health care, child care, education and housing costs. This tough circumstance prevents economic growth and has the middle class feeling overlooked by policymakers. Addressing the squeeze requires programs for the middle class that increase access to credit and boost purchasing power without forcing lower middle class families to compete with poorer families for benefits.
Let’s use real estate as an example. According to the Center for American Progress, middle class incomes fell 8% from 2000-2012, yet real estate costs rose 27% in that same period. This affects current homeowners and renters alike. Smart policy would seek to alleviate the financial burden of increased housing costs by providing access to credit and affordable mortgages for prospective homeowners, allowing for loan modifications that reduce principals and creating affordable options for renters. Similar aid packages could help business owners interested in commercial real estate for their companies.
The federal government recognizes that the middle class squeeze is real, and is taking steps to expand credit access and make homeownership more affordable. In May of 2014 the Federal Housing Administration (FHA) announced Homeowners Armed With Knowledge, or HAWK, a plan designed to provide greater access to homeowners loans and save homebuyers approximately $325 a year, adding up to nearly $10,000 over the life of their loan. In December 2014, federal funding for HAWK was knocked out of the budget, disappointing underserved borrowers in need of assistance.
The FHA quickly bounced back from the loss by announcing just weeks later that it would reduce annual premiums by a half percent for new borrowers, lowering the rate from 1.35 percent to 0.85 percent. The Department of Housing and Urban Development (HUD) projects that this will save more than 2 million homeowners an average of $900 each year. The rate reduction is expected to incentivize around 250,000 prospective homebuyers to purchase their first home in the next three years.
It’s promising to see the government working towards solutions that make it easier for middle class to secure housing loans, and there are more plans in the works that will bring financial stability to the average family. Greater public investment in higher education, high-quality public preschools and affordable access to healthcare and retirement plans would address the middle class struggle while providing a safety net for families . Policies like these can make the middle class lifestyle affordable once again.
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