Renters Hit Harder By Inflation

Renters are being hit harder by inflation than homeowners are according to CNN. Renters and homeowners experience inflation differently; and right now, renters are taking a much more painful hit. While shelter inflation has come down over the past few months, in December, the shelter index was still 6.2% higher year over year. That increase accounted for two-thirds of the total rise in the price index, excluding food and energy. While shelter costs are down from their 8.2% peak in March 2023, they likely need to fall to roughly 3.5% for inflation to come in consistently on target, Danielle Hale, chief economist for Realtor.com, said in a statement. Two things are driving the divide between how homeowners and renters experience inflation. First, while most homeowners’ monthly payments have not risen, the cost of renting has surged. Rent jumped 11% in 2022 from the year before. It also climbed higher in 2023, although at a significantly slower pace. Rent prices increased just 0.2% last year, according to Realtor.com.

As of November, the price of rent nationally was up 22% compared to pre-pandemic levels, according to Realtor.com. Meanwhile, because most homeowners have a fixed-rate loan, their costs have not changed even as mortgage rates have soared during the Fed’s historic effort to rein in inflation. The second reason renters are feeling more pain is due to the disparity in pay between the typical homeowner and a typical renter. Even if the typical mortgage payment is higher than a typical monthly rent payment, renters’ incomes tend to be lower than homeowners. This means renters generally put a larger share of their income toward their shelter costs than homeowners do. That is leading renters to pull back on their discretionary spending more than homeowners, according to recent research from the Bank of America Institute.

Source: CNN