Housing Market Alert: Why So Many Americans Are Now Rent-Burdened

  • Experts expect a pullback in the housing market this year, but what about rent-burdened consumers?
  • While rent prices are coming down, the rent-to-income ratio hit 30% in 2022 for the first time ever.
  • Moody’s began keeping track of the rent-to-income ratio in 1999 and it has been steadily climbing since.
A paper cutout of a house is attached to a tag reading "for rent."
Source: Pixelbliss / Shutterstock.com

The housing market remains front and center. Is it because of the housing boom during Covid-19 and that now seemingly everyone is looking for the “bust” part of that equation? Or is it because so many Americans have become rent-burdened by increasing costs and higher inflation?

While investors don’t like to talk about it, there’s another element in play: 2008.

Like it or not, the scars from the Great Recession and implosion from the housing market have left investors and homeowners forever worried about the state of the real estate market.

Prior to 2008, real estate had been one of the steadier assets out there. Regardless of what else was going on, the housing market was generally stable. But not in 2008. That’s as worries over a banking crisis began to grow and as the economy entered a prolonged recession.

We’re not in the same boat now, but there are definitely concerns.

A recent report from Goldman Sachs (NYSE:GS) made the bearish case for the housing market. More specifically, though, it laid out which cities are most at risk of a housing bust.

Ultra-low interest rates, flush liquidity and a boom in remote work helped fueled housing prices to new highs. As the economy enters a softer stretch — and as interest rates continue to climb — there are concerns about the housing market going forward.

Will a Fall in the Housing Market Help Rent-Burdened Consumers?

One big aspect to the rise in the housing market has been the implication for renters. Put simply, rent prices have been rising rapidly as well. That has left many consumers trapped, as rising costs have squeezed them into a tough spot.

Along with climbing prices for groceries, transportation and other expenses, rent is on the rise, too. The numbers back this up.

In 1999, Moody’s began tracking the percent of household income that goes toward rent — the rent-to-income ratio. For the first time ever, that figure has crossed 30%. It did so in 2022, which was up from 28.5% in 2021 and 25.7% in 2020.

That alone concludes we have rent-burdened consumers in the United States, as this figure has steadily risen over the years. Martha Galvez, the Executive Director of the Housing Solutions Lab at New York University’s Furman Center, had the following to say about this situation, per The Seattle Times:

“We’ve been moving in this direction for decades […] Since the ’70s, rents have been rising faster than incomes. And among lower-income households, high rent burdens have been the norm for a long time.”

Further, not all consumers are hit the same. That is to say, some are more rent-burdened than others. For instance, the rent-to-income ratio in New York was 68.5% last year. Miami and Fort Lauderdale had the second- and third-highest ratios, at 41.6% and 36.7%, respectively. In Los Angeles, the ratio came to 35.6%.

Some are hoping that a decline in real estate prices and the housing market will help alleviate some of the rent pressure. While a softening economy should help, rent has been proven to be stickier than other consumer costs. That said, it has also come down in recent months.

On the date of publication, Bret Kenwell did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2023/01/housing-market-alert-why-so-many-americans-are-now-rent-burdened/.

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