The Status of Renting in America

5/30/2024

Before many people take the plunge into homeownership, they rent. Whether they’re attending college, moving to a new city, or just not ready to purchase a home, most people have likely rented a home or apartment before.  However, rental prices have skyrocketed over the last four years making it hard for young people to move out of their parents’ homes and start a life of their own. Renters in the U.S. are often paying over the 30% benchmark of their income on rent. The U.S. Department of Housing and Urban Development (HUD) defines this population as “rent-burdened,” and those who pay more than 50% of their income on rent as “severely rent-burdened”.

Listen to our podcast: 

How do you know when you’re ready to rent?

Young people have always been excited to move out of their parents’ house and rent a place of their own.  If you find yourself in this category, first, determine where you want to live geographically. This will help you determine how much money you’ll need to move out because rent prices and the cost of living vary from place to place. Once you’ve decided where you want to live, you then need to determine your rental goal. What size place are you looking for? Whether it’s something small just to get you started or it’s something a little bigger that you can grow into, this will make a difference and will help you decide when you’re ready to rent.

You’ll need to have a good credit history before you can move ahead. Have a credit card or some type of loan established to help build a good credit history. Your credit history is something that your landlord will be looking at when determining if you’re fit to rent or not. If you don’t have credit established, but you want to rent, rental properties may allow you to have a co-signer on your lease. However, it’s important to remember that your co-signer will be responsible for your rent payment if you neglect to pay it. You’ll also need a form of identification, such as a driver’s license or passport. In addition to identification, landlords will also be looking for bank statements and/or pay stubs to determine that you have the income to support your rent.  

Read More: Homeownership and Millennials, Pre and Post-Pandemic Impact

The effect inflation has on rent

When the inflation rate increases, the general prices of goods and services increase with it. This causes taxes, maintenance, and more to go up. Many landlords decide to increase their rental prices to account for other inflated costs. As the inflation rate increased over the last four years, rent prices followed suit. With inflation rates elevated, you’ll have to consider if you need, or want, to sacrifice perks to afford rent. Do you cut cable to be able to afford rent? Or do you cut out extra self-care or rent a smaller property to be able to afford the monthly payment?

Elevated inflation is certainly a challenge for anyone potentially looking to rent, especially for younger millennials and gen z-ers because they are looking to establish their independence. Renters frequently need multiple sources of income to be able to sustain their independence. Whether it’s driving for a rideshare company or expanding on a hobby, many people have adopted a second, or even a third, income stream to pay their rent while keeping up with the cost of living. You may also need to think about adding another person to your lease to afford your rent. Whether it be a partner or roommate, that extra person paying half of the rent may be just what you need to keep up with your rent payments.

Read More: What is Pre-Purchase Housing Counseling? 

Benefits of renting

Renting can give you more financial flexibility, since you don’t have to financially keep up with the property’s repairs. Outside of taking reasonable care of the property and respecting it, you don’t have to worry about replacing anything that may be broken or keeping up with the maintenance of the property. If there’s a problem with your rental, you’re able to call the landlord and have them take care of it. Renting also gives you greater freedom to move. Most rental agreements are for a year, so after a year of living somewhere you have the freedom to move elsewhere if you’d like. There’s also the option in some leases to enter into an agreement that is month-to-month, which gives you more flexibility to move, if you’re unhappy with your current renting situation.

Renting can give you the opportunity to live in a neighborhood and school district that you couldn’t afford otherwise. Renters can test out these neighborhoods and living arrangements to see if it could be somewhere they would want to live when they could afford to purchase. Not only can you try out different locations when renting, but you can also try out different housing styles to see what works best for you. This can be particularly helpful for those who are new to an area.

How to incorporate rent into your budget

Typically, you should budget a minimum of 28-31% of your gross monthly income for housing costs. However, living below your means will set you up for better financial success. If you get paid bi-weekly, try to spend no more than one paycheck on your rent each month. Living below your means will help in case your utilities or other living expenses increase.

Once you’ve determined your rent and are confident you can afford the payment every month, work other expenses into your budget. You’ll want to consider utilities (if they’re not included) as well as phone, transportation, groceries, debt payments, etc. into your monthly budget.

If you’re struggling to pay your rent every month, contact HUD.gov to find a local housing counselor in your area, or go to navicoresolutions.org  to connect with a housing counselor.

Ready to become a homeowner?

If you’re planning on staying in a particular area for at least the next three years, it may be time to consider buying rather than renting. Before purchasing a home, you should have a good idea of how much home you can afford. You can do this by getting pre-approved by a lender or by simply using an online mortgage calculator tool. However, keep in mind that outsiders are making a generalization of what you can afford based on your gross income and an estimate of some of your expenses. The figure they come up with doesn’t account for your lifestyle and personal financial goals.

Develop a projected budget of what expenses would be like with a mortgage payment in your desired price range. Be sure to include all household expenses as well as utilities, groceries, and miscellaneous expenses. Also, account for an amount you can contribute toward your personal financial goals such as entertainment, travel, retirement, and investments. Remember, just because a bank will lend you a certain amount of money doesn’t mean you should borrow that entire amount. Buying a home is a huge commitment and certainly not something to jump into.

Read More: Navigating Home Buying in Today's Economic Climate

Regardless of if you’re renting or buying, having an emergency fund will help you to continue to pay for your housing despite any sudden financial challenges. Without a financial safety net, one unexpected expense can leave you behind on your rent or mortgage payment, leaving you in debt.

In summary, for those who want to avoid the hassles associated with homeownership, the cost of upkeep, and have more flexibility, renting may be a better option. For some, renting might make more sense for their financial circumstances. Whatever your personal circumstance, if you’re looking to rent as a young person, consider all of the costs associated with renting before making the move out of your parent’s house. Timing is everything, so although you might yearn for that independence, it may not be the right time for you to fly out of the nest.

 

 

Go Back