Rapid inflation is hitting low-to-moderate income renter households the hardest
- For the first time in decades, the rent-to-income ratio has reached 40% at the height of U.S. inflation, marking one of the least-affordable rental markets ever.
- The estimated rent-to-income ratio for the rest of 2023 should continue to hover around 40%, with low-to-moderate-income renters bearing the brunt of high inflation.
- Nearly 70% of renter households have a gross family income that is less than the U.S. median.
In the three years following the onset of the pandemic, rental costs have become more expensive than ever for millions of households. This is especially true for low-to-moderate-income households, which make up nearly 70% of renters.[1] Skyrocketing home prices during the pandemic housing boom, which made the 2000s housing bubble seem more restrained and disciplined, has priced millions of renters out of homeownership.
Rental Costs See Their Fair Share of Inflation
Rents have skyrocketed in tandem with home prices since early 2020. Wedged between rapid home price and consumer price inflation, the rental market has also seen its fair share of inflation. For the 14-month period between August 2021 and September 2022, the single-family rental market recorded double-digit, year-over-year growth that reached nearly 15% at its peak. But unlike millions of homeowners who have had the opportunity to refinance into low-rate mortgages or cash in on their all-time-high housing wealth, there has been no such relief for U.S. tenants, as low interest rates and the resulting inflation have only fueled fast rental cost hikes.
Just how expensive have rental costs become for typical Americans? Despite slowing after the Federal Reserve’s interest rate increases, single-family rents continue to reach new highs. As of August 2023, the median asking rent for U.S. single-family detached or attached housing units was $2,600, up by 4% year over year. August’s median asking rent for condominiums was $2,800, up by 3.7% on an annual basis. The median asking rent for small, two-to-four-unit residential apartments was $2,300, up by 4.5% year over year.
Likely driven by limited supply, rental costs for condominiums grew the fastest during the three-year pandemic housing boom, followed by single-family detached or attached properties. Since 2020, the median asking rent for condos jumped by 33.3% to average 11% per year. For single-family detached/attached properties, median asking rents were 28.6% higher than in August 2020. The staggering rent growth during COVID-19 stands in a stark contrast to pre-pandemic trends, when gains were flat and sluggish.
Rent growth for small, two-to-four-unit residential apartments has not been as rapid but nevertheless picked up amid rapid inflation, averaging 5% per year over the last three years and largely in line with reported rent growth for multifamily apartments. In fact, before the pandemic, rental cost growth for small residential apartments outpaced that of larger condos or single-family detached/attached rentals. The shift to remote work and the resulting demand for larger living spaces farther away from city centers is likely driving this market movement.
Rent-to-Income Ratio Hits 40%
As a percentage of household income, rent affordability is not only at the lowest point it has been in decades but has also experienced significant deterioration due to rapid inflation and stagnant wage growth, coming in the wake of rapid home price appreciation and housing-wealth increases. At the height of U.S. inflation in 2022, a household that rented a median-priced, single-family home and earned an income near the U.S. median spwnt about 40% of its gross family income on annual rent payments.
The estimated rent-to-income ratio for 2023 should continue to mark the worst rent affordability for millions of households, while low-to-moderate income renters will continue to bear the brunt of high inflation
Stay current with rental cost trends by regularly checking out CoreLogic’s Single-Family Rent Index report, which is generally released on the third Tuesday of each month.
[1] Computed from homeownership rates. As of 2022, renters made up about 35% of all U.S. households. The percentage of renters is much higher for low-to-moderate income households with incomes less than the U.S. median household income, (where about 53% of households rent), compared with about 21% for households that have moderate-to-high incomes.
