Millennials increasingly cash strapped as incomes are hit by rent costs
No wonder younger Americans are taking longer to leave the family nest – it’s expensive out there! While growth rates in rents have slowed this year compared to the last few, Freddie Mac’s April Outlook report said that higher housing costs and younger adults’ decisions to delay buying have led to an uptick in apartment sharing and multigenerational households, thereby delaying the formation of new households. That’s a serious headwind to the economy given the mutiplier effect of housing on the economy.
Odds are this means the housing market will continue to face consumer spending headwinds as upcoming Fed rate hikes make the cost of owning a home even more expensive. Freddie Mac’s economists say that mortgage rates should edge upwards this year and in 2019, hitting 4.9 percent in the fourth quarter of 2018 and 5.4 percent a year later. Meanwhile, potenial homeowners struggle to save for the down payment given disposalbe income that is being hit by rent costs as well as servicing student debt costs and rising living costs.
This likely means the slowdown witnessed thus far in 2018 for rent growth will be a temporary one. While others watch for a would be rebound in the domestic housing market, we’ll be watching new apartment construction and what it may mean for rental rates, and discretionary consumer spending.
Younger adults are spending a stunning amount of money on rent — $93,000 by age 30, according to a new study. More important, rent sucks up about 45% of their income during this first, critical decade in the workforce. That leaves precious little left over to save for a down payment and work towards entering that second phase of adulthood — household formation.How does that compare to earlier generations? Not well.
Researchers at RentCafe who crunched numbers available from the U.S. Census say that, yes, on this front, things are harder for today’s 30-somethings.
GenX adults spent only 41% of their income on rent by age 30 ($82,000, inflation-adjusted) while Baby Boomers spent just 36% (about $71,000).
Things are not looking up for the next generation, sometimes called GenZ, either. RentCafe estimates that they’ll spend just more than $100,000 on rent by age 30, or nearly half their expected income during their 20s.
Source: Millennials spend a large percentage of income on rent
