Why $100,000 can’t support a middle-class family anymore, according to a viral video

Is a six-figure income enough to support a middle-class family anymore? The answer hinges on two key questions, according to a video that’s striking a chord on social media.

In an Instagram reel that’s attracted more than 100,000 likes, Orlando-based real-estate agent Freddie Smith lays out why, in his opinion, some households are living comfortably off a six-figure income while others are barely getting by. It comes down to two questions, he says.

“[W]hen you bought a house and if you have children is making a huge difference in where you sit in the middle class today,” Smith, 35, said in the video.

According to Smith’s back-of-the-envelope estimations, there are two extremes in the middle class. At one end are people who bought a house when mortgage rates were under 4% and who don’t have kids in day care. At the other are people holding mortgages with 7% or 8% rates while also paying for child care.

Before and after the pandemic

Smith’s video, which has more than 5,500 comments on it, offers a quick summation of economic headwinds that have been mounting for homeowners since 2020.

Consider the gulf between homeowners who bought before the pandemic and those who bought after. In the last three years, home prices soared 37%, according to the Case-Shiller index, and mortgage rates rose from 3% to the 7% range, both of which made it a lot harder for a typical home buyer to qualify for a mortgage.

The homeowner who bought a median-priced home in January 2020 at $266,300 with a 3.5% interest rate and a 10% down payment would be paying around $1,000 per month in just principal and interest.

But a homeowner in October 2023 who bought a median-priced home at $391,800 with a 7.5% mortgage rate and 10% down would be paying nearly $2,500 in principal and interest.

Florida real-estate agent Freddie Smith in a video explaining the impact of mortgage rates and child-care costs on household budgets.


The financial gap between those homeowners grows wider when the cost of childcare enters the picture.

Though it varies widely by state, city, and region, the average weekly cost of putting a child in day care is now $284, up 53% since 2013, according to the Cost of Care Report by Care.com. That translates to roughly $1,100 for a month. In some high-cost cities, the monthly cost of day care can run over $2,500 a month, according to some users on social-media site Reddit.

Two-thirds of parents surveyed by Care.com also said that they were spending 20% or more of their annual household income on childcare.

For a couple with one or more small children, buying a house in late 2023 could mean an additional expense of at least $2,600, as compared with those who don’t have to pay for childcare and bought before the pandemic ended and mortgage rates surged.

Smith also highlighted the additional burden of student-loan payments as another expense borne by home buyers today. Since the student loan payment pause ended, many borrowers are expected to pay back roughly $200 to $300 a month.

With these expenses, even a six-figure income may not be enough for many new families, Smith said in his video. “So you can see why those people are saying, [that] $150,000 is the new middle class,” Smith said in the video.

Smith also noted that some in the middle class who have lower housing and child-care expenses can probably live comfortably on $80,000 a year. They may assume that their peers with higher mortgage rates and kids “must be overspending” if they can’t get by on $100,000, according to Smith.

But the fact remains that inflation — and surging borrowing costs as a result — in 2023 have brought into question what it takes to stay in the middle class in America today, Smith stressed.

And since the pace of inflation, as well as home price growth, has exceeded the growth in income, that’s likely going to push more Americans into renting, he added.

Smith told MarketWatch that his own assumptions about what it means to be middle-class in the U.S. have been challenged by the surging costs of housing and child care.

“I’ve always thought about the middle class as where you work a 40-hour week, and you’re able to make enough income to comfortably buy a house, and maybe if you are good with money, [you can] save up for a vacation, have a couple of kids, afford Christmas presents,” Smith told MarketWatch in an interview.

“But today, the middle class actually can’t buy a home,” he said.

Housing affordability hit a 39-year low this year. Renting doesn’t offer much relief: the number of cost-burdened renters, meaning those who spend more than 30% of their income on housing, hit a record high in 2021. That trend has continued in 2023, according to a May report by Moody’s Analytics.

The company also charted out the rise in incomes as compared with rents since 1999:

Moody’s Analytics

This article was originally published by a www.marketwatch.com . Read the Original article here. .