Over the last five years, we have seen an upwards trend in renting homes instead of buying. It’s difficult to ignore the obvious causes, including the economic downturn and the burst housing bubble. Increased financial insecurity has resulted in far more families and individuals renting a home instead of buying.
This is because renting is traditionally seen as the “cheaper” option, which is just not the case anymore. In fact, about a third of all Americans live in an area where rent would constitute more than a third of their income. Places like Baltimore, Miami, the Bronx, and Philadelphia especially struggle with this problem. For example, households in the Bronx would usually spend more than 60% of their income on rent for a three bedroom home.
With rent only increasing, why would people continue to choose this option over purchasing a property? Of course, the economic downturn has many of the rising generation skittish when it comes to purchasing a home. Job insecurity or the fear of being tied to a property for thirty years that you might not be able to pay for, shies many people away from buying.
However, that means that a large section of the population is paying far too much for their homes and are having to cut back on the amount of money they are investing in retirement or even just towards putting food on the table each month.
If you are paying more than 30% of your household’s total monthly income on rent each month, you are probably paying too much in rent. In order to see if your rent is average for the area, use an online tool that allows you to type in your address and rent payment and provides you with the average rental payments for homes like yours in your area.
In some cases, there isn’t much you can do about a too-high rent payment, except to wait out the lease and look for a more reasonable rate elsewhere. If you are looking to rent, however, you might consider looking into buying. Talking to a realtor and lenders can help you understand how much you will be paying in mortgage and other fees and if that rate is lower that what you would pay to rent a house in the same area.