Staggering Rent Increases in 2017: Will 2018 Follow?

Mike Mish Shedlock

2017 was a painful year for renters. Americans spent a record amount of their household income on rent.

MarketWatch discusses the Staggering Amount Americans Paid in rent in 2017.

If sending in your rent check is painful, you’re not alone: American renters — especially those in major cities like New York, Los Angeles and Chicago — spent a staggering amount on housing in 2017.

Collectively, American renters paid a total of $485.6 billion in 2017, up $4.9 billion from the $480.7 billion in 2016. That’s according to an analysis by Zillow, a real estate and rental website. Renters in Las Vegas, Minneapolis and Charlotte felt that increase the most. In each of those cities, rent rose more than 7% since 2016.

The average rent for a one-bedroom apartment ranges from $830 per month in places like Houston and San Antonio to more than $2,000 per month in New York, San Diego and San Jose, according to an analysis of Apartmentlist.com.

The median U.S. rental now requires 29% of median monthly income, according to Zillow. Between 1985 and 2000, renters spent about 25.8% of their income on housing. Financial experts say people should not pay more than 30% of their salary on housing, but that’s no longer feasible for many Americans.

The cost gap between renting and buying is widening as rents stabilize and home prices rise, a separate study released this month by Realtor.com found. In 57 of the top 59 largest metros in the U.S., it makes more sense to buy based on simple monthly costs relative to income.

Make Sense to Buy?

It only makes sense to buy if all of these conditions are true

  1. You want a house
  2. You can afford a house
  3. You have a stable job
  4. You are willing to give up the mobility freedom of renters
  5. You have time for upkeep and maintenance

The Fed re-blew the property bubble. Point number 2 is a problem for most. Millennials may find point number 4 a problem.

Squeeze is On

The median U.S. rental now requires 29% of median monthly income. Is owning a home any better? At least with owning a home, you have locked in your monthly payment, but not property taxes. The latter is obscene in Illinois where a $500,000 home may have property taxes of $15.000 a year.

There is no reason to believe rent prices will fall in 2018.

Mike "Mish" Shedlock

Comments (33)
Greggg
Greggg

Illinois (#2) is in a race to the bottom with New Jersey (#1). I have a feeling that Mish is thinking of Frank Zappa "Going to Montana Soon'. #33. Montana
Effective Tax Rate: 0.80% , Average Home Value: $242,342, Average Property Tax: $1,950.

No. 1-33
Sechel
Sechel

i bought my current home 15 years ago and while the rent vs buy math worked out i found that a common assumption mortgage interest deductability

Sechel
Sechel

frequently doesn't hold true

Stuki
Stuki

This is how indentured servitude is supposed to work. Nothing weird nor anomalous about it.

If those who already owned cell phones in an area, along with those whose income derived from taking a cut from selling existing phones, could ban anyone else from making new ones; cell phone prices, and the pace of cell phone technology improvement, would closely follow that displayed by housing as well. Just like pricing, availability and quality of most goods in the Soviet Union did. That’s just how complete lack of any freedoms whatsoever always work.

Freedom is what improves accessibility and quality of goods over time. As it allows those capable of producing something more efficiently, to drive incompetents and leeches out of business, by offering potential customers a better deal. Rinse and repeat, and you get better cell phones cheaper. Don’t rinse, don’t repeat, and you get decaying roach motels for ever higher prices. With incompetent Politburo apparatchiks and slum lords cheering the whole way.

When there is no freedom, as is the case in US housing, it’s hardly surprising that availability and quality of the stuff closely follows the same trajectory it did for the last wave of slaves; those picking cotton in Antebellum. Whose shacks required a sizable chunk of their income to afford as well.

ReadyKilowatt
ReadyKilowatt

Gee, if only there were some solution...
Denver's housing boom/bubble is causing a lot of building to happen. Even the old long-abandoned Gates Rubber factory is being converted to apartments or condos. I suppose they're all going to be "luxury high end" units, but at least there's more inventory hitting the market. Seems to me real estate is the same as oil: the fix for high prices is high prices. The difference is that government puts insane demands on the former, creating scarcity. Not sure if it is intentional or stupidity.

hmk
hmk

The problem is twofold. Abnormally low interest rates trigger malinvestment and asset price inflation. Thank the incompetent Ivy league Phd's from the monetary politburo. They have no business experience but think they can run the economy via their theoretical models and or political pressure. Number two is the housing interest deductibility. This is basically a gift to builders as it also has been shown to cause housing price inflation. With the govt out of the equation there may be boom and busts, but the free market will remedy that at some point

JonSellers
JonSellers

People forget that the only reason to buy a house is so that you eventually don't have to pay rent. I paid my mortgage off in 2012, and currently pay about $160/mo in property taxes and insurance. I go to work now because I want to, not because I have to make the monthly nut. Road to Serfdom is paved by debt.

Ambrose_Bierce
Ambrose_Bierce

Several complexities have changed the nature of home ownership. when both adults work you have to pay for housekeeping, yard care, and maintenance. Those services are packaged into the rental fee, and for home owners into HOA fees. A house is a consumable, like a car, it has an effective shelf life. Why there isn't the house lease I am not sure. Over regulation has hurt the housing industry, permits, environmental reports, infrastructure covenants. Rents are high because all the various industries associated with housing saw asset values rising and put their hands out too, including the lowly carpenter. Rents are only going where housing has already been.

Snow_Dog
Snow_Dog

The “housing market” is actually a marketplace for making loans that are secured by assets (houses) which can be carried on the books of lenders via mark-to-model pricing while the GSE’s back the actual loan.

shamrock
shamrock

I guess there are pockets of high single digit rent increases but overall rent paid went up 1%? Not exactly staggering.

AWC
AWC

Trading ever depreciating fiat currency for "Real" Estate? Blasphemy, I tells ya.

AWC
AWC

Bottom line, when the currency is devalued 50% asset prices rise 100%. In time, the currency becomes worthless and disappears, while the assets remain.

jivefive99
jivefive99

Rents are up in Chicago (10%+) also because of the increasing PROPERTY TAXES. I know thats the only reason why my rents have gone up.

thimk
thimk

Looks like the disposable income gains produced by the last fed tax bill will go to housing/healthcare. https://mhanson.com/11-4-hanson-uh-oh-housing-un-affordability-just-got-lot-worse/

OldGuy
OldGuy

If you want to live in a high cost of living area that is a choice. There are many places across this country with jobs and reasonable property prices. My home is paid for but rental property for a 15-1600 sq. ft. single family dwelling go for around 800 bucks a month. If you love your city life you will pay for it or if your in a high property tax state you will pay for it. Heck New York is already declaring the new tax deduction unconstitutional at the Federal level. Seriously what a joke.

nic9075
nic9075

Uh the same people complaining like the “hanson family” are the same types who buy the latest Iphone every year and wear expensive designer clothing, those $1100 Canadian Goose parkas and lease new cars every two or three years. The answer is to tell these complainers and either get therapy to control their ‘inner shopper’ and compulsive overspending habits or get higher paying jobs (and of course if they are not white or asian — will complain how ‘hiring managers’ are racist).. serioulsly most people in the USA now seriously suck now to be around — the majority are pathologically materialistic and into conspicuous consumption or have serious anger problems

nic9075
nic9075

It is peoples choice to spend ‘record amounts’ of money on rent just like it is their choice to have $15,800 in outstanding credit card debt (per person) at 15% APR for their designer clothing and electronics shopping habits

nic9075
nic9075

In the NYC & Boston areas you cannot find anything to RENT for under $2,000 a month let alone for $1800 a month like in Seattle (and I am talking about out in the suburbs in Boston near the New Hampshire border or out in Suffolk County Long Island or even Central NJ now).

DW19
DW19

I advise caution. The last bubble people were rushing into homes and condo's. Las Vegas, California and Miami come to mind then the bubble popped and you couldn't give them away. Does anyone remember the Obama bailout for these homeowners living in homes foreclosed by banks? Buying is right if you exit before the bubble pops otherwise your locked in until market values return. There is good news for renters. All real estate bubbles cause new apartment complexes to get built. Developers know they can always convert rental units to longterm stay hotels or sell as condos. The question you need to ask yourself is buying going to be the right decision now and will it still be advantageous to buy next year or 5 years down the road? If you have a short term horizon rent even though it costs more. If you have a longterm horizon and can stay thru a real estate downturn then take your chances and buy. PS: Trump and the Fed could do everything right but a soverign debt default in Greece, Italy, Spain, Japan, China (etc) or a virtual currency like bitcoin could suck all the real world money and liquidity into the virtual world. We saw it with the internet crash sucked money and liquidity out of bricks/mortor. We also saw it when virtual financial instruments like hedges and credit default swaps sucked money out of real world economy. You don't know where exogenous events will come from or when. Make your decisions off longterm fundamentals.

MntGoat
MntGoat

29% is low because it factors in cheap parts of the US. On the coasts as well as Denver, Austin, Nashville and other hot cities like that my guess is a lot of people are paying 35%-40% of income in rent. I read a recent Harvard housing study where it says the % of people paying 50%+ of their income from rent is at record highs. The problem is developers cannot build affordable housing in America because of construction costs + high permit, entitlement, red tape costs. They can only build expensive class A type apartments and make them pencil.

MntGoat
MntGoat

@shamrock ..... there are a lot more then just "pockets" of "high single digit rent increases". Most cities with a lot of jobs have seen some pretty huge rent increases. Seattle, Portland, all the Cali cities, Dallas, Denver, Boston, Nashville, Salt Lake, Boise...just to name a few... have seen very STEEP rent increases since 2011. All of them far above the level of inflation for other non housing goods. Lots of millennial household formations happening and more boomers then ever are renting.

MntGoat
MntGoat

The CPI Index for rent of primary residence was up 3.9% in the year ending Sept 2017. This marks yet another year where housing costs have risen much faster then the prices of non-housing goods. Rent increases were highest in the west (5.5%) and South (3.9%). Less in the Midwest (2.9%), and East (2.6%).

Hppyll
Hppyll

From about 2000-2008, rents were flat in my area (and probably true nationwide). It seemed that everyone was buying houses. Tenants were getting one, two, and sometimes 3 months free rent when signing a new lease. There simply were not enough tenants. Rent increases? No... rents were pretty stable. Not enough to cover costs to the landlord. As a landlord, the increases from the past 6 years were needed to make up for the lack of increases earlier.

KidHorn
KidHorn

"Collectively, American renters paid a total of $485.6 billion in 2017, up $4.9 billion from the $480.7 billion in 2016"

KidHorn
KidHorn

How is this a problem? Seems like a paltry increase to me.

nic9075
nic9075

Millennials live with roomates and in most cases mommy and daddy are paying their rent as well as making their student loan and credit card payments

stillCJ
stillCJ

Editor

Exactly Kidhorn, its a 1% increase, less than inflation. Hardly staggering, I thought it would be more.

stillCJ
stillCJ

Editor

BTW, interesting that the "For Rent" sign in the photo seems to be a permanent sign!

Advancingtime
Advancingtime

We can blame government policies for much of the rent increases. We create trouble by trying to deny that many people go through life making their own problems and allows the government to sidestep the issue by pawning the problem off on the private sector. An eviction on someone's record usually means they become ineligible for government housing programs. By making them "ineligible" for certain programs the government shrewdly and cleverly sidesteps having to deal with these people.

The brutal truth is that government housing cherry-picks the best of the low-income renters providing them with very low rents and nice apartments while dumping the rest on the private sector. This drives up rental prices on everyone else. More on this subject and other issues concerning housing in the article below.

http://Government Housing Policy Heaps Misery On Private Landlords.html

Advancingtime
Advancingtime

Sorry but the "no edit" format can be difficult. Here is the proper link

MishMash
MishMash

There's mobility and then there's mobility due to instability.

Taunton
Taunton

@mishmash exactly. When jobs aren't stable, the housing situation won't be stable. Stable, breadwinning jobs have all but disappeared and the only jobs to prosper in this "recovery" are either tech jobs, which are NOWHERE near as prevalent as people imply they are, and service jobs. Neither of those are particularly stable as jobs, and with most people in the service sector with no benefits and no job seurity it's hard to imagine stability. Therefore, freedom is a necessity, not a preference


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