As rental vacancy hit its lowest point in 30 years in July 2015, the cost of renting has continued to rise. Rental prices climbed 3.5 percent between June 2014 and June 2015, matching the biggest jump since 2008, according to the U.S. Department of Labor. And at what cost for U.S. renters?
New studies from Zillow show that renters are paying for higher rent costs in more ways than their rising lease.
Inability to Build Savings
In 2013, 11.2 million renters, or 25% of renters, were severely rent burdened (spending more than half of their monthly income on rent). In a Zillow survey, homeowners and renters were asked if they could cover three months of expenses if they were to lose their main source of income.
- 57% of homeowners said they could cover expenses with their savings.
- 59% of severely burdened renters said they could not cover expenses at all.
- 22% of severely burdened renters said they could cover expenses with savings.
- 30% of median burdened renters said they could cover expenses with savings.
More to Likely to Skip on Healthcare
The study also found that with high rent comes the need to tighten renter household budgets, even on necessities. Households with the highest rent burdens are more likely to not seek medical attention because of the cost, with dental care taking the biggest hit.
Less Likely to Plan for Retirement
Another trend among highly burdened renters is the inability to financially plan for retirement, even if their employers offered defined contribution retirement plans. Higher rent burdens translate into lower participation in retirement planning.
- 27% of severely burdened renters have not given any thought to retirement financial planning, in comparison to 6% of homeowners.
- 36% of severely burdened renters do not participate in employer-contributing retirement plans because they can't afford contributions, in comparison to 24% of homeowners.
In all three areas of savings, retirement planning and healthcare, homeowners were more likely able to afford these expenditures, even in comparison to renters with median rent burdens.
If homeownership is a part of your financial goals, don't let common homebuying misconceptions about credit score and down payment requirements offset your path to the American Dream. There are several loan options that provide down payment assistance as well as credit score flexibility.
For more information about what it takes to achieve home financing, contact one of our mortgage bankers and download our free Mortgage 101 Handbook for everything you need to know about buying and financing your first home.