The rising rent costs are hitting Americans harder than ever, with the share of U.S. disposable income going towards rent totaling 3.81% in the third quarter—the highest share in data going back almost six decades.
Rising shelter costs have been the primary influences on most of the inflation in the U.S. during the economic recovery of the past few years.
Part of the reason for the growing share of Americans’ pay going towards rising rent has to do with fewer homeowners overall in the U.S. in recent years as housing prices have skyrocketed, outpacing the relatively moderate rent increases. Still, the price index for rental of tenant-occupied nonfarm housing rose 3.7% in the year through September, according to data from the Commerce Department. That amounts to near about the fastest pace seen in the past 10 years.
To make matters more dire for American renters, the nominal disposable personal income in September was up just 2.9% from a year earlier, marking the 22nd straight month that wages have not been able to keep up with the rental inflation on a year-over-year basis.
Furthermore, homeownership is increasingly becoming more difficult for first-time buyers, as new data reveals that homes are sitting on the market for the shortest time in 30 years, according to the National Association of Realtors (NAR).
First-time buyers were also down one percent, accounting for 34% of all home buyers compared to 35% last year.
The age of first-time home buyers remains flat, but the age of repeat buyers is steadily climbing, reaching an all-time high of 54.
“With the lower end of the market seeing the worst of the supply crunch, house hunters faced mounting odds in finding their first home,” said Lawrence Yun, NAR chief economist, in a statement. “Multiple offers were a common occurrence, investors paying in cash had the upper hand, and prices kept climbing, which yanked homeownership out of reach for countless would-be buyers.”
The U.S. is finding itself in a self-perpetuating problem, whereby homes are more expensive than ever and are gobbled off the market faster than ever. On top of that, housing prices continue to climb, creating an ever-growing barrier to entry for first-time buyers. Finally, with rising rent prices outpacing wage growth, Americans looking to buy homes are able to save less while waiting to get into the housing market.
The compounding effect is that more and more Americans are finding themselves shut out from the American dream of homeownership.
A final knock-on effect is that younger generations, particularly Millennials, are being forced out of big cities due to the price increases. Meanwhile, urban areas are far more likely to be job hubs versus smaller towns, but younger people find themselves having to relocate to more rural areas in order to afford the rising rent and home prices.
While Millennials are making up a large portion of homebuyers in the U.S., they are often searching out smaller towns with more affordable prices, rather than struggling to settle into the hyper-expensive environments of major cities.
Of the top 11 cities that Millennials are flocking to, the largest is El Paso, TX, with a population of 683,080, according to Ellie Mae, a mortgage data firm.
Others on the list include Athens, OH; Aberdeen, SD; and Williston, ND.
“Highlights From the Profile of Home Buyers and Sellers,” National Association of Realtors, October 30, 2017.
“Rent Is Eating Up a Record Share of Americans’ Disposable Income,” Bloomberg, October 30, 2017.
“Why are millennials moving to these small towns?“ MarketWatch, October 30, 2017.