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Don’t Believe The Headline Hype: The Cost Of Rent Is Still Crazy High
We laugh at some of the headlines we see in mainstream financial publications, particularly around housing.
The rental market is softening so fast in some pockets of the country that landlords have no choice but to offer concessions
Then, these articles go on to tell us about free rent promotions or one-time discounts alongside data that rents have decreased by 1.1% year over year in the West to $2,469 a month and 0.3% in the South to $1,673. Meanwhile, rents have increased by 4.6% annually in the Midwest to $1,434 and 1.2% in the Northeast to $2,509.
Here are the two interrelated things these ultimately useless stories (sorry!) rarely, if ever mention:
If we do anything well around here at The old Juice, it’s that we try to provide some meaningful, real world, on-the-ground context around the data. Whether it’s stock market, economic or housing data—the three areas we’re obsessed with.
So, let’s do that.
First, to be able to afford the median rent nationwide of $2,052, as of August, you need to earn $6,840 a month, or $82,080 a year, if you’d like to keep your payment at 30% of your pre-tax income.
With the median weekly for full-time wage and salary workers in the United States at $1,163.41 in the government’s latest report, we’re talking just under $56,000 a year.
It’s not too tough to see how those numbers add up.
Of course, it’s all relative. Based on quite a few factors, but particularly location and income. Two variables that have a relationship meaningful to this discussion. Chances are you might make more money in New York City or San Francisco or Boston than you would doing the same job in St. Louis or Cincinnati.
At the end of the day, if you’re spending around 30% of your income on rent, you probably don’t have a ton of, if any, money left over at the end of the month no matter where you live. But here’s the thing, according to a Harvard study, 49% of households spend more than 30% of their income on rent. Roughly 26% of these people spend more than half.
So, dealing in a percentage point here or there means nothing on the ground.
I mean, even if rents dropped by 5%, would it matter materially to most cash-strapped or even relatively comfortable households?
In a super expensive place such as Manhattan, that large of a decline would bring the median on a one-bedroom from $4,295 to $4,080.25 for savings of $214.75. This is hardly life-changing money. In fact, with the cost of living as high as it is it warrants the old school retort of don’t spend it all in one place.
We went into deep detail on the outrageous cost of rent in New York City last month in The Juice.
In a less expensive place, such as Cleveland, where the average rent is $1,322, a 5% decrease puts $66 in your pocket each month.
So, you get the picture, it’s all relative.
We’re using this 5% hypothetical to make the point. But the sad thing is we can only dream about such a decrease. That national median of $2,052 is only $2 less than the record high, set earlier this year, and a $14 month-over-month increase. Plus, it’s not people living paycheck to paycheck, or close, each month can just pick up and move. Moving costs money.
Sadly, any recent decrease anybody is realizing is, on the low end, at best, providing some breathing room at the end of the month and, on the high end, adding to the brunch and cocktail budget.
The Bottom Line: As is often the case in this economy we’re talking about the haves and have nots. This is a theme we’ve been detailing and foreshadowing for months now at The Juice. Because, here again, it illustrates real life on the ground.
By the way, some big banks are finally starting to admit that this is how it is. That we’re seeing a haves and have nots economy. We’ll detail that data later in the week.
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