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The US rental market recently passed a happy milestone when the country became “rent burdened” for the first time, according to a new report from Moody’s Analytics.
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According to the US Department of Housing and Urban Development, the rent burden means that individual households direct 30% or more of their income towards housing. This usually means that they “may have difficulty meeting necessities such as food, clothing, transportation, and medical care.”
There are more of these families now than at any other time in recent memory. A Moody’s Analytics study found that during the fourth quarter of 2022, the national average rent-to-income (RTI) ratio reached 30% for the first time in more than 20 years of tracking the metric. The Q4 figure was up 1.5% from last year and up 0.2% from the previous quarter.
As CNBC reported, financial experts have long advised that families spend no more than 30% of their gross income on housing. But it poses a major challenge in many markets, where growth in rental prices has outpaced growth in incomes.
“In high-rent cities, especially, this parameter has become increasingly unattainable,” Alia Mohamed, co-founder and CEO of Openigloo, told CNBC.
One of those high-rent cities is New York, where according to Moody’s, households earning the city’s median income must pay nearly 69% of their earnings to rent a median-priced apartment. In dollar terms, this means your household would need to earn at least $177,000 per year in order to be considered rent-free in a typical apartment in the Big Apple.
The problem has become so severe that the Biden administration recently introduced a new “Renters Bill of Rights” that aims to strengthen tenant protections and encourage rental affordability.
One reason for the increase in rents is that many Americans cannot afford to buy a home, which increases the demand for rentals.
The Moody’s report indicated, “Rising mortgage rates have caused many home buyers to lose their home affordability and will continue to be buyers.” “As a result, apartment demand increased and rates increased. As the disparity between rent growth and income growth widens, American’s wallets feel the financial crunch as wage growth outpaces rent growth.
Like most financial matters, the degree of problem varies greatly depending on where you live. According to Moody’s Analytics, the Southwest and Midwest have the lowest current rent-to-income ratios, at 19% and 20.1%, respectively. The South Atlantic (24.8%) and the West (24.9%) are vying for the next spot, while the Northeast has the highest RTI at 27.9%.
If you live in Massachusetts, Florida or New York, get ready to pay top dollar for your rental. Those three states topped the 30% rent burden limit during the fourth quarter of 2022.
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States that have seen the most increases in average rent burden over the past three years are Nevada (+4.9%), Florida (+4.8%), Alabama (+4.2%), South Carolina (+4.2%), Arizona (+4.1%) %) and New Mexico (4.0%).
If you’re looking for bargains, five states see their average RTI decline in 2022: Maryland (-0.62%), Oklahoma (-0.49%), Arkansas (-0.16%), Minnesota (-0.08%) and Utah (-0.02%).
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