An unexpected casualty of the mortgage bust and recalibration has emerged – the rental market. The cost to rent a property is skyrocketing, and at the same time supply is shrinking. It’s a new problem, as prior to 2008 home ownership levels were at all-time highs, thanks to loosening lending standards and a rapidly appreciating real estate market. But since the crash more than 4 million families have lost their homes to foreclosure, pushing those former-owners into the rental market. There are now 43 million rental households in the United States, totaling about 35% of all homes, the highest level in over a decade.
Tightening supply and driving up demand, many of the affordable single family residences and properties have been snatched up by big investors, who had the cash to capitalize on a down market. It’s believed that more than 3 million single-family residences are now investor-owned.
However, increase in demand for rentals isn’t only due to the real estate crash, but the economy as a whole. As U.S. workers faced their fears about unemployment, layoffs, and lost confidence, banks tightened their vaults, making it harder to get a mortgage loan. The result was an accelerated wave of those who wanted to rent, not own homes.
In fact, for the 25-54 age group, basically prime working years, the adjusted cost of renting is the highest since they started tracking those statistics in 1970. The cost of renting a home is far outpacing inflation and real wages. This recipe of increased demand and inflated prices means that many families struggle with housing costs.
Currently, 50% of all renters pay more than 30% of their income to rent. That’s a marked increase from only 18% of renters paying more than 30% of their income a decade ago. 30% is also the accepted barometer for housing affordability.
The problem is even worse for those on the lower end of the economic scale, and an astounding 30% of renters pay at least 50% of their income to housing costs! According to U.S. Department of Housing and Urban Development, the average hourly wage among all renters is $14.32, yet it takes at least $18.79 to afford an apartment at fair market rent. The Fed calls reports that the ratio of rental costs to disposable income is the worst level since the Great Depression.
The numbers hold little reason for future optimism - over the past five years, median household income has fallen every year after adjusting for inflation, to the point where Americans earn about what they did in 1996.
"We are in the midst of the worst rental affordability crisis that this country has known," said Shaun Donovan, U.S. Secretary of Housing and Urban Development.
What do these numbers mean to you, the average consumer? Quite simply, buy a house if you can – the long term aggregate costs will be profoundly lower than renting, and additionally, if you have the means, buy a rental property. The numbers are all in your favor.