Barely mentioned in Biden’s State of the Union: Rents are rising, complicating Americans’ ability to save to buy a home

When it comes to rental rates, it’s definitely not 2020.

President Biden barely mentioned in his State of the Union address: The cost of renting a home is rising at the fastest clip in years, as landlords recover from their earlier struggles in the COVID-19 pandemic. For some families, a sudden rise in rent prices will make home ownership out of reach.

Perhaps Biden’s closest was speaking on this issue: “The pandemic was punishing. And many families are living on a pay-for-salary basis, struggling to keep up with the rising costs of food, gas, housing, and more.”

At another point in the speech, Biden touched on the implications of rising inflation. “With all the bright spots in our economy, record job growth, and rising wages, a lot of families are struggling to keep up with the bills,” he said. Inflation deprives them of gains they might otherwise feel. I get it. That’s why my top priority is price control.”

Among the president’s priorities with the US bailout, Biden said he would seek to lower energy and childcare costs for families, and provide more affordable housing. All this will reduce costs. Under my plan, no one with less than $400,000 a year would pay an extra penny in new taxes. Nobody. ”

However, unlike other policy proposals, Biden took no time in his speech to expand on his administration’s plans to lower the cost of housing.

With all the bright spots in our economy, record job growth, and rising wages, many families are struggling to keep up with the bills. “


Joe Biden’s State of the Union speech

Making rent remains a huge challenge for millions of Americans. The average gross rent nationwide as of January was $1,789 per month, according to a new report from Realtor.com. This is an increase of 19.8% over the year. January was the eighth consecutive month that year-over-year rents rose more than 10%.

Compared to the price of a two-bedroom home, rent has outpaced home price growth across each rental unit size. Average rents for studio apartments increased by 21%, while the cost of renting one- and two-bedroom units increased by 19.2%. In comparison, the purchase price of a two-bedroom home has only increased 11% over the past year.

Danielle Hill, chief economist at Realtor.com said in the report. “So much faster, in fact, that even as monthly home costs increased in many buy-in markets, rents for units of a similar size were 20% higher.”

In many cities, it is affordable to buy a home

Realtor.com’s report compared the cost of buying a home to the cost of renting in the 50 largest cities nationwide. In 26 of these locations, it was cheaper to buy a home than rent. On average, buying a home in these areas was 20% cheaper than renting, in terms of monthly expenses.

The best place to buy, rather than rent, was Birmingham, Ala. households would have saved more than 44% of housing costs if they had bought a home. Realtor.com calculated the cost of buying a home in each market by averaging median list prices for homes of various sizes and assuming that the buyer paid a 7% down payment and had a mortgage with an interest rate of 3.45%. Housing costs also take into account taxes, insurance, and homeowners association dues.

In Austin, Texas, purchasing a home included monthly costs that were 76% higher than the average rent.

In general, the most affordable markets for buying were “secondary” cities – locations with smaller populations, mostly across the South and Midwest. Other cities where buying was significantly more affordable than rent included Cleveland, Pittsburgh, St. Louis and Detroit.

At the other end of the spectrum, renters are the money savers in “big tech” cities. Austin, Texas, earned the dubious distinction in a Realtor.com analysis for being the city where it was cheaper to rent than to buy a property. Buying a home translates to a monthly cost that is 76% higher than the cost of renting there. Other cities where this was true included New York, San Francisco, San Jose, and Seattle.

“For young Americans like Gen Z who may have moved home to save money during COVID, renting in a big tech city offers flexibility and relative affordability even as rents in these areas rebound,” Hill said.

Black Americans likely to lose as rents rise

The home ownership gap between white and black Americans is growing, even as the homeownership rate increases by record. A new report from the National Association of Realtors found that the homeownership rate in the US as of 2020 – the most recent year for which data is available – was 65.5%, which is a 1.3% increase from the previous year.

But the home ownership rate among black Americans was just 43.4%, still lower than its previous peak of 44.2% in 2010. Meanwhile, Hispanic Americans’ home ownership rate was 51.1%, breaking the 50% mark for the first time ever. . Among white Americans, home ownership is over 72%.

Jessica Lutz, vice president of demography and behavioral insights at the National Association of Realtors, said in a report.

“The housing affordability and low inventory made it more difficult for all buyers to get into home ownership, but even more so for black Americans,” Lutz added.

A variety of factors present barriers to black Americans aspiring to own homes. Half of black American renters spend more than 30% of their income on housing—and more than a quarter of black renters are cost-burdened, spending more than half of their monthly income on rent. By comparison, only 20% of white renter households were severely cost-burdened.

“Housing affordability and low inventory have made it more difficult for all buyers to get into home ownership, but even more so for black Americans.”


Jessica Lutz, Vice President of the National Association of Realtors

Income is one factor that explains these gaps. Based on median income alone, about 47% of white renting households can qualify to purchase a home, according to a Realtors report versus just 36% of their black peers.

Additionally, black families were more likely to take on student loan debt. This was true in two out of five black households, as opposed to one in five white households.

“This makes it difficult for black families to save for a down payment, and as a result, they often use their 401(k) or retirement savings to go into home ownership,” Lutz said.

As long as black families face these and other barriers to owning homes — mortgage applications from black and Hispanic applicants are more likely to be rejected than their white neighbors — they will not only be subject to higher rents, but will also have fewer opportunities. to develop their wealth.

Analysis from title insurance company First American FAF,
+ 1.61%
It found that the average homeowner’s wealth is 40 times greater than who rents his home, confirming that home ownership remains the primary path to wealth development for most Americans.

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