According to Realtor.com’s August Rental Report, affordability continues to worsen as a growing share of income goes to rent.
Renters know none of those rent payments contribute to their personal wealth, but those currently priced out of the housing market have little choice but to spend more of their income on a property they’ll never own.
Here’s what you need to know.
Rents are higher than ever, but rent growth has slowed
In August, asking rents climbed to a record high, but rent growth slowed for the third straight month.
According to Redfin, the national median asking rent ($2,039) showed a year-over-year increase of 11% — the smallest annual increase in 12 months, down from a peak increase of 19% in March.
August 2022 is the first month in the past 13 months to see rent growth slow to a single-digit rate for 0–2 bedroom properties.
Median rent growth slowed to 9.8% across the top 50 metro areas year-over-year.
That said, it’s still three times as fast as the rent growth rate right before the pandemic hit in March 2020. And with inflation driving the cost of living up across the country, renters are feeling the pain.
Studios are catching up with double-digit rent increases while rent growth for one-bedroom and two-bedroom units has slowed to a single-digit pace.
Median rent by unit size:
- Studio: $1,489, up 11.8% ($158) year-over-year
- 1-bed: $1,653, up 9.3% ($141)
- 2-bed: $1,964, up 9.1% ($163)
Renters hoping to save money by downgrading to a studio are still spending more than a year ago on rental costs.
Rent growth will likely slow further as the Federal Reserve continues to raise interest rates. Higher interest rates impact the rental market because they put a damper on spending power in the economy as a whole, including renters’ budgets. Growth in rents is also likely to be slowed by a boost in rental supply. There are nearly a million rental units under construction that will hit the market in the coming months and years.
Share of income going to rent climbs to 26%
According to the 30-percent rule—one approach to measuring rental affordability—a household should spend no more than 30% of their budget on housing costs, which include utilities.
The U.S. Department of Housing and Urban Development (HUD) uses this rule to define “cost-burdened households” as those spending over 30% of their income on housing costs and “severely cost-burdened households” as those spending over half their income on housing.
The median rental price in August ($1,771) claimed a larger share of a typical household’s budget compared to August 2021 (26.4% vs. 25.7%).
Nine of the top 50 U.S. metros had a rent share of over 30% relative to the median household income.
Miami, FL, was the least affordable in August, with a median rent (for a 0–2 bedroom unit) 1.5 times the estimated maximum affordable rent for the median household in the area. Families with a typical household income in Miami would spend 46.5% of their monthly budget on the typical Miami rental—3.4 percentage points more than a year ago.
After Miami, these popular coastal or Sun Belt metros ranked as the most expensive rental markets:
- Los Angeles, CA
- San Diego, CA
- Riverside, CA
- Tampa, FL
- New York, NY
- Boston, MA
- Orlando, FL
- Providence, RI
Oklahoma City, OK, was the most affordable, with a median rent of 42% less than the estimated maximum affordable rent. Next up for affordability were these midwestern metros:
- Minneapolis, MN
- St. Louis, MO,
- Kansas City, KS
- Louisville/Jefferson County, KY
Northeast metros like Boston and New York City saw the biggest deterioration in rental affordability over the past year.
What does this mean for you?
Some of your prospective clients are likely renting right now until they can buy a home, whether they’re currently searching or preparing to enter the market. As rents continue to rise across the country, you can show them the relative benefits of home ownership.
While you’re at it, get to know what is standing in their way, whether it’s reduced buying power, worries about declining home values, or uncertainty as to where they want to live.
Help them identify what they really want and what’s stopping them, and show them the data they need to make informed decisions.