Rent hasn’t represented much of an escape from rising home prices and rising mortgage rates during the pandemic. Rents have risen as homeownership costs have risen.
But some good news has emerged on the rental side.
Average rent demand for two-bedroom properties dropped to zero to 0.6%, or $10, to $1,771 in August from July, according to Realtor.com. This is the first drop for the 50 largest cities since November.
“It may be a sign of the return of regular seasonal cooling to the rental market, as seen in recent selling data,” Realtor.com economists Jiayi Xu and Danielle Hale wrote.
But this may also indicate that rents have peaked, as interest rate hikes by the Federal Reserve are starting to have a negative impact on the economy.
To be sure, rents are still up 9.8% in the 12 months through August. But this is the first time the increase has been in the single digits since July 2021.
In any case, “real affordability challenges remain, as inflation continues to outpace annual wage growth, evaporating the real gains employees might see from a robust labor market,” said economists at Realtor.com.
Consumer prices jumped 8.3% in the 12 months through August, while average hourly wages rose 5.2%.
More Five, Less Affordable
The general rule is that rent is affordable when it reaches 30% or less of the household’s income. These are the five least expensive housing markets as of August, according to Realtor.com.
1. Miami/Fort Lauderdale/West Palm Beach, rent as a share of household income: 46.5%
2. Los Angeles / Long Beach / Anaheim, rent as a share of household income: 40.7%
3. San Diego/Carlsbad, rent as a share of household income: 37.1%
4. New York/Newark/Jersey City, rent as a share of household income: 36.3%
5. Boston/Cambridge/Newton, rent as a share of household income: 35.1%.
These are the five most expensive markets:
1. Oklahoma City, rent as a share of household income: 17.5%
2. Minneapolis/St. Paul/Bloomington, rent as a share of household income: 20.1%
3. St. Louis, rent as a share of household income: 20.3%
4. Kansas City, Missouri, rent as a share of household income: 20.6%
5. Louisville/Jefferson County, rent as a share of household income: 20.6%.
Own expensive homes
Affordability is a big issue for home buyers as well.
The 30-year mortgage averaged 6.29% in the week ending September 22, according to Freddie Mac, the highest level in nearly 14 years. The rate is up from 6.02% a week ago and up from 2.88% a year ago.
This increase affects home buyers in the pocketbook. Those with a monthly budget of $3,000 can buy a $479,750 home at 6% mortgage rates, down from $621,000 a year ago, when mortgage rates prevailed at 3%, according to real estate brokerage Redfin.
“In other words, this home buyer lost $140,000 in purchasing power this year as mortgage rates doubled,” Redvin said.
