According to research from the Bank of America Institute, rent prices in the US are rising at the quickest rate in decades, severely impacting American households all around the nation.
According to a new analysis from the Charlotte-based bank, Bank of America’s clients’ median rent payments increased 7.4% in July over the same month last year, up from 7.2% in June. Americans of all income levels are being squeezed by soaring rents, but middle-class and younger workers are being hit hardest.
According to the survey, particularly for middle- and lower-income households, a considerable increase in rent costs “may have meaningful influence on household financial conditions.”
Because greater housing expenses most directly and severely influence household finances, rising rents are a worrying issue. According to Census Bureau data, about 34% of households rent, but for lower- and middle-income families, the percentage is significantly higher. Renters make up more than half, or 52.6%, of all households with family incomes below the national median of $31,133.
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There are no indications that rent inflation will begin to decline in the upcoming months, which is even more concerning.
The Federal Reserve Bank of Dallas’s latest forecasts data indicates that rent inflation will probably continue to rise before reaching its peak in the middle of 2023. According to the most recent Dallas Fed predictions, rent may peak at 8.3% in May before beginning to decline. Over and beyond pre-pandemic levels, rent is predicted to stay high through 2023.
According to Bank of America’s study, “this means the squeeze from increasing rent will likely endure for the foreseeable future.” Rent inflation might someday significantly reduce consumers’ purchasing power elsewhere, notwithstanding current high bank balances and robust incomes.
Builders perceive a “housing recession” as sentiment falls to a new two-year low.
In average, households spend roughly 7% of their yearly income on rent, but in 2020, households without college degrees paid about 10% of their total income on rent.
The labor department stated last week that although the rate of price increases slowed marginally in July, with the monthly increase being unchanged at 0%, the consumer price index nonetheless rose 8.5% from the previous year, lingering close to an excruciating four-decade high.
The price of necessities like rent and food continued to rise in July despite the dip in headline inflation, which was mostly attributable to a drop in gas costs. According to the data, rent increased 6.3% annually and 0.7% over the course of the month.
The median rent payment increased even more for consumers with yearly household incomes between $51,000 and $100,000 in July, rising 8.3% from the prior year. While this was happening, the lowest income bracket—those making $50,000 or less—saw a 7.4% rise. The smallest annual rise, 5.9%, was seen in those earning more than $251,000.
Runaway rent prices are caused by a number of factors, including increased demand because potential homebuyers are priced out of the market by high prices and rising interest rates. The gains are partly explained by low supply and high demand.
According to Joe Brusuelas, chief economist at RSM, “the costs inside the housing complex have not yet stopped climbing, and it will likely be some months before an apex is reached.” He argued that as authorities work to temper the scorching housing market, inflation spreading into the housing sector would lead the Federal Reserve to vote in favor of a third straight 75-basis-point interest rate increase in September.
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He predicted that it would take two to three years for inflation to approach the Fed’s 2% inflation target.