Higher Rental Rates Affecting Adversely the Housing Market


The spring house buying season 2014 has already started, but the activity is much slower than expected. The rising house prices and the tight inventory play a significant role in this. Still, they are not the only factors which have a negative effect on buyers and on the market respectively. A recent survey has shown that the rising rental rates have a large adverse effect as well.

Approximately 33% of all people who rent a home in the United States pay more than the set affordability threshold. This threshold accounts for 30% of the monthly income. In most of the large cities such as Miami and Philadelphia, renters devote over 50% of their income to rent. The percentage is even higher in cities like New York, Chicago and Lose Angeles. The city with the highest percentage of household spending on rent is New York. The monthly rent of a three-bedroom house in the Bronx corresponds to 66% of the typical household.

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As the share of income which goes towards the payment of rent increases, the purchase of a home becomes ever more difficult for the average household. Households have little or no cash left to save towards a down payment. At the same time, the mortgages with low down payment such as the government-backed FHA loans have become more expensive and their share in the total number of home loans dropped by nearly 2 times over the past year.

Analysts comment that the higher rental rates, which have grown by 21% since 2006, have a negative impact on the housing market which extends to the long term. As people have to spend a larger chunk of their income on rental housing, many of them are unable to opt for lower-paid jobs which would bring them career advancement and higher income in the future or to pursue education which will also have a positive effect on their earnings. As a result, they are likely to remain renters in the long term.



Christian Calvin mortgage Christian is a contributing writer for Mortgage.info. He is a graduate from the University of Tennessee with a degree in Communications and a concentration in Broadcasting. Christian has served as vice-president for a privately-held company for more than 20 years. Additionally, he has also applied his writing and business knowledge to various websites with a focus on business and sports news . . . both of which are passions. Christian enjoys playing golf and spending time with his family and friends.

Contact: christian@mortgage.info

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