As we have discussed many times in the past, for the Average American, owning a home is increasingly unaffordable. This has led to a dramatic surge in rents, and ultimately to a significant squeeze on the cash flow of renters across the nation.
Recall, here is RealtyTrac's Q1 2016 Home Affordability Index, which showed that 9% of the US county housing markets were less affordable than their historical levels.
The unaffordability of owning a home of course has led to a plummeting national home ownership rate, as shown by Harvard's recent State of the Nation's Housing report.
Not surprisingly, as millennials are making less and drowning in debt, home ownership rates for younger age groups has completely fallen off a cliff. As a reminder, more millennials live at home with their parents now than at any other time since the great depression. However, as the chart below shows, home ownership has fallen across the board.
The result of all of the above, is that rental prices for everyone have surged, and is putting more and more renters in a position of being significantly cost burdened as more income needs to be directed toward paying the rent. The number of cost-burdened households rose by 3.6 million from 2008 to 2014 to a stunning 21.3 million households. Even more concerning is that the number of households with severe burdens (ie: paying more than 50% of income for housing) jumped by 2.1 million to a record 11.4 million households. As the report states, cost-burdened renters are at historic highs.
From the report
The divergence between the rental and owner-occupied markets is evident in the number of cost-burdened households in each segment. On the owner side, the number of households facing cost burdens (paying more than 30 percent of income for housing) has fallen steadily as high foreclosure rates have pushed out many financially strained owners, low interest rates have allowed remaining owners to reduce their housing costs, and fewer young households have moved into homeownership. As of 2014, the number of cost-burdened owners stood at 18.5 million, down 4.4 million since 2008.
The decline has occurred across all age groups, but especially among younger homeowners. Homeowners age 75 and over, however, are among the most cost-burdened groups, with their share at 29 percent compared with 24 percent for households under age 45. With the aging baby boomers swelling the ranks of older homeowners and larger shares of households carrying mortgage debt into retirement, the problem of housing cost burdens among the elderly is likely to grow.
On the renter side, the number of cost-burdened households rose by 3.6 million from 2008 to 2014, to 21.3 million. Even more troubling, the number with severe burdens (paying more than 50 percent of income for housing) jumped by 2.1 million to a record 11.4 million. The severely burdened share among the nation’s 9.6 million lowest-income renters (earning less than $15,000) is particularly high at 72 percent. In all but a small share of markets, at least half of lowest-income renters have severe housing cost burdens (Figure 4). While nearly universal among lowest-income households, cost burdens are rapidly spreading among moderate-income households as well, especially in higher-cost coastal markets.
As a result of all of this, low-income renters are increasingly exposed to the risk of eviction - this is the reality of those who can't seem to understand why all of the experts continue to tell everyone the economy is performing so well.
According to the report, the median asking rent on new apartments was $1,381 per month in 2015, well out of reach for the typical renter earning $35,000 a year. As we pointed out when we discussed this report last year, for anyone curious as to where the "missing" inflation is, look no further than in the rental market. If that doesn't suffice, ask the 710,000 renters who have been threatened with eviction in the previous three months, with nearly eight out of ten of these threats associated with a failure to pay rent. It is no wonder that millennials are being forced to live rent-free back at home with mom and dad.