More Millennials Are Stuck in a Rental Trap
Nationwide rents have risen 15 percent, on average, between 2009 and 2014, according to the National Association of REALTORS®’ data. In some hot markets – like New York, San Francisco, and Seattle – rental costs have surged more than 20 percent in that timeframe. Meanwhile, renters’ incomes have grown by only 11 percent.
An increasing number of renters are spending more than 30 percent of their incomes on rent – what most financial analysts consider financially burdensome to a household. About 46 percent of renters age 25 to 34 spent more than 30 percent of their incomes on rent – an increase from 40 percent of renters 10 years earlier, according to a report by Harvard University’s Joint Center of Housing Studies. What’s more, a new analysis from Zillow shows that renters who spend more than 30 percent of their income on rent have a median savings rate of zero.
Rising rents are due to “supply constraints” in housing and rentals, says Lawrence Yun, NAR’s chief economist. Fewer rentals have led to higher prices.
Millennial renters may be particularly hard hit too, as rising rentals costs are exceeding wages and millennials are renting for longer periods of time than previous generations. The typical first-time buyer now has rented for six years prior to buying – up from 2.6 years in the early 1970s, according to an analysis from Zillow. The median first-time buyer is age 33; a generation ago the median first-time buyer was about 30 years old.
The longer rental times coupled with high rental costs are causing renters to struggle with saving for a downpayment.
“With rents taking up a larger chunk of household incomes, it’s difficult for first-time buyers – especially in high-cost areas – to save for an adequate down payment,” Yun said in a news release from an NAR study earlier this year that showed the widening gap between rental costs and household incomes.
Source: “Rents Are Rising, But There Are Ways to Stretch Your Dollar,” CNBC (Aug. 18, 2015) and “More Millennials Stuck Renting for Years Before Buying Home,” The Associated Press (Aug. 17, 2015)