Approximately half of American renters shell out over 30% of their earnings towards housing expenses.
The recently released data from the US Census Bureau's 2023 American Community Survey highlights the severe affordability crisis in America's housing market. Not only is buying a home exponentially costly for numerous residents, but so is renting one.
As Molly Ross, a statistician from the Census Bureau, stated, housing expenditures witnessed an increase between 2022 and 2023 for both property owners and tenants. This was seen in the median housing expense for renters, which shot up from $1,354 to $1,406 (accounting for inflation).
This signifies a 3.8% rise in rental costs, outdoing the 1.8% surge in property values, as per the Census Bureau.
Households catalyzed to spend over 30% of their income on rent, mortgage installments, or other housing-related expenses are deemed to be "cost-burdened," according to the US Department of Housing and Urban Development. The survey reveals that above 21 million households find themselves in this predicament.
Furthermore, the survey disclosed a discrepancy in the proportion of income spent on rent by race. In 2023, 56.2% of Black or African American households spared more than 30% of their income on housing expenditures, in contrast to 49.7% of the overall population. Among Hispanic households, 53.2% were burdened by these costs.
Moreover, roughly 2.5 million (or 30.6%) of Black households were recognized as "extremely burdened," as they spent more than 50% of their income on housing costs in 2023.
Following the pandemic, housing expenses have witnessed a significant surge. The Federal Reserve slashed interest rates to almost zero in 2020 to boost the economy, yet this intervention, coupled with the rise of remote work, ignited powerful demand for property. However, the Fed's recent rate-hiking crusade, which brought interest rates to 23-year highs, has not yet sufficiently dampened demand. Instead, property prices remain sky-high, and mortgage rates have likewise ascended.
Mortgage rates serve as a substantial cost to homeowners who secure loans for their dwellings. Although mortgage rates remain elevated compared to recent historical norms, they have been decreasing lately in anticipation of a Fed interest rate reduction this month. Last week, the average 30-year fixed-rate mortgage stood at 6.20%, marking the lowest level since February 2023.
Nevertheless, another substantial cost that impacts homeowners is insurance. This expense has become increasingly unaffordable in regions endangered by natural disasters such as wildfires, hurricanes, and tornadoes. The survey discovered that 5.4 million among the 85.7 million homeowners in the US spent a minimum of $4,000 on their insurance coverage in 2023. Florida homeowners faced the highest proportion of homeowners spending this amount, followed by Texas, California, New York, and Louisiana, according to the survey data.
However, the survey revealed that renters endured a more substantial cost burden as a proportion of their income in comparison to homeowners in 2023.
However, a July study from Realtor.com reported distinct findings. The site, which analyzed its home listings, claimed that buying a starter home (i.e., a studio, one-bedroom, or two-bedroom dwelling) was 61.3% more expensive than renting one in the 50 largest metropolitan areas in the US in July.
Additionally, the survey indicated that six states witnessed a decline in renters' income allocation to rent in 2023: Illinois, Kansas, Minnesota, New Mexico, New York, and West Virginia.
The sharp increase in homeownership or rental costs has played a role in the 2024 US Presidential election. Both Vice President Kamala Harris and former President Donald Trump have proposed strategies to tackle housing affordability.
Harris's plan involves granting $25,000 in down payment aid to first-time homeowners, whereas Trump has proposed a prohibition on mortgages for undocumented immigrants, who constitute a modest sector of the mortgage market.
The rise in housing expenses, including both rent and mortgage payments, is causing significant strain on household budgets. According to the Federal Reserve's actions during the pandemic, mortgage rates have been decreasing recently, providing some relief for homeowners.
This affordability crisis in the housing market is negatively impacting various sectors of the economy, particularly affecting low-income and minority households who are spending a disproportionate amount of their income on housing costs.
