Inflation is increasing the cost of living for just about everyone, but renters may be feeling the most pain. New data analyzed by Realtor.com suggests that American renters spent 30% of their monthly budgets on rent in February.
But that’s just the average. February rents accounted for an even higher portion of household incomes in 14 of the 50 largest U.S. markets, with the list of least affordable areas dominated by Sun Belt metros like Miami, Tampa, and San Diego.
According to the report, the median rent hit a new high of $1,792 last month, up more than 17% over February 2021. Rents were higher across all apartment sizes, but studio apartments experienced the fastest growth, rising to a median of $1,474.
However, larger units also posted double-digit gains. Rents for both one-bedroom and two-bedroom units rose more than 16%, with the median rent on a two-bedroom unit going over $2,000 a month for the first time.
“With rents surging nationwide, February data indicates that many renters' budgets may be stretched beyond the affordability limit," said Realtor.com Chief Economist Danielle Hale.
High rents prevent homeownership
The sudden rise in rents not only creates an affordability issue for renters, but it also makes it much harder for them to save enough money to become homeowners. Hale says renters who hope to become buyers also face other challenges.
“Fast-rising mortgage rates and still-limited numbers of homes for sale could mean some would-be buyers may stick with the flexibility of renting,” Hale said. “With rental demand already outmatching supply, rental affordability will remain a challenge.”
Mortgage rates jumped last week and start this week very close to the 5% mark. The average 30-year fixed-rate mortgage hit 4.95%, moving more than a full percentage point in just the last six months. The difference in one percentage point on a $250,000 mortgage is $149 a month, an amount that could price many buyers out of the market.
A new report by the Pew Research Center finds that several factors are contributing to rising rents. Among them are a shortage of new construction and a surge in home buying during the early months of the pandemic, which was encouraged by record-low mortgage rates.
The report shows that 46% of American renters spent 30% or more of their income on housing in 2020, including 23% who spent at least 50% of their income. That means nearly half of U.S. rents meet the U.S. Department of Housing and Urban Development’s definition of being “cost-burdened.”
"Whether it's rent or mortgage payments, the general rule of thumb is to keep monthly housing costs to less than 30% of your income,” Hale said.
For renters who want to buy a home and need to save for a downpayment, Hale says it’s important to find a relatively affordable rental unit -- something that’s getting harder to do.