Renting on the Rise Along with Costs
For many, homeownership is significant part of the American dream, but, according to a report by the Joint Center for Housing Studies of Harvard University, the number of Americans renting their homes has increased since 2004. This trend is keeping the cost of rentals high. The report suggests the trend will continue, and the supply of rental housing may be very scarce for some renters.
According to the report, the percentage of renters has increased significantly across most age groups. In the last 30 years rentership is at its highest among those in the age range of 30 to 64. Since 2004, renters aged 35 to 39 have increased by over 10 percent, the highest jump of all age groups studied. The group of 30- to 34-year-olds increased by about 9 percent, while groups aged 28 to 29, 40 to 44, 45 to 49, 50 to 54, and 55 to 59 each rose by over 6 percent. The average increase overall is about 4 percent for all age groups. The only decrease was among renting Americans 75 and over.
Rents gobble income for many
Affordability is a concern because the study showed that 50 percent of all renters spend more than 30 percent of their income on rent. More than half of those renters are paying 50 percent or more of their income to rent each month. As a general rule of thumb, the cost of renting or paying a mortgage shouldn't exceed 30 percent, and banks generally prefer a debt-to-income ratio of 28 percent or less when considering mortgage loan applications.
Family renters increasing
Among other findings, the study reported that families with children are about as likely to rent as single people. The number of renting families with children trailed single renters only slightly. The report also showed that close to one-fourth of all renters had incomes of only $15,000 per year. Nearly another quarter of renters only made between $15,000 and $30,000 annually, but the report stated people of all income levels rent their homes.
Part of the increase in rentership may be part of the aftermath of the collapse of the housing bubble. Almost four million homes succumbed to foreclosure during that time, so many were left without the means to purchase another home. Since 2009, vacancy rates have dropped by 2 percent for all rental properties, down to 8.5 percent in late 2013 from 10.6 percent in 2009.
Trend expected to continue
If demand remains high for rental housing, the cost of rentals will also remain pricey. The Harvard report forecast that "rentalship" will continue to remain elevated in the coming years, but the rate of growth will slow.
A significant challenge will be for low-income renters to find affordable housing. According to the report, "affordability fundamentally reflects the simple fact that the cost of providing decent housing exceeds what low-income renters can afford to pay."
As an example, those making only $15,000 per year would need to find a rental for $375 a month to keep their housing costs at the recommended 30 percent or less. Only 5 percent of new rental units built in the last four years came with a monthly price tag under $400, and the median monthly rate was $1,000. Only 34 percent of those new units were reported to rent for less than $800 each month.
With high rent, those looking to save for a down payment to purchase a home may have to wait longer as the cost of rent eats up income. However, loans requiring only 3.5 percent down are still available to qualified buyers and interest rates remain relatively low.
To take a look at the most current mortgage interest rates, please visit our mortgage page.