Housing costs have consistently increased over time, but in recent years, they have far outpaced inflation and wage growth rates.
Americans struggling to make ends meet now find it challenging to balance the competing costs of groceries, housing, and transportation while paying off debt and building savings.
Shelter inflation, the rate at which housing costs rise, is crucial in shaping the overall inflation rate. It has surpassed the overall inflation rate since early 2023 and remains a critical factor for why inflation has been so stubborn and difficult to curb.
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Homeowners and renters face different housing costs, but both groups have experienced higher-than-normal price increases over the past five years.
While buying a house has typically been viewed as a way to build wealth and acquire home equity, many would-be homeowners have been priced out of the housing market with high mortgage rates, increased market competition, and surging home prices.
With more renters facing cost burdens and buyers facing headwinds in the housing market, many young Americans are unable to reach life milestones.
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Renters and home buyers are feeling the squeeze of inflation
According to a recent Redfin report, the median U.S. apartment rental costs $1,592, meaning that renters need a salary of at least $63,680 to afford rent. While this is far higher than the average U.S. salary, it shows improvement and marks the lowest salary needed for renters since March 2022.
Overall, renters earn more than ever, with the average salary increasing to $54,752, up from $40,505. However, rising inflation and older millennials remaining in the rental market as they wait out high mortgage rates in an unaffordable housing market may contribute to the salary increase.
Redfin Senior Economist Sheharyar Bokhari predicts that renters will continue enjoying a favorable rental market throughout 2025.
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“Rental affordability will continue improving this year as wages grow and rents remain flat, thanks to the recent boom in apartment construction,” he said. “The affordability gap between renting and buying is likely to widen further in 2025, as home prices rise and mortgage rates remain high."
“That means potential homebuyers—especially from younger generations—may decide to continue renting for longer, as it’s the only affordable option.”
The median mortgage payment increased to $2,686 this month, the highest amount in seven months. As home prices become increasingly unattainable, consumers may choose to stay in the rental market.
Rising housing costs pose problems for younger generations
Though mortgage rates showed promise of coming down significantly and reached almost 6% in September, rates have persistently inched toward 7% over the past few months.
Experts note that such high mortgage rates and increasing home prices keep potential home buyers on the sidelines. Home sales are down 10% annually, and houses stay on the market for an average of 52 days, the longest stretch in two years.
Though renting may be more advantageous in such a challenging home-buying environment, there may be long-term implications as Millennials and Gen Z delay homeownership due to affordability.
Related: Dave Ramsey warns Americans to avoid this huge mortgage mistake
A 2024 Credit Karma study found that almost half (49%) of Americans note that inflation and mortgage rates have made it ‘impossible’ to buy a home, but many also find it difficult to afford rent. 30% of Gen Z and 27% of Millennials surveyed state they can no longer afford their rent, with some considering foregoing necessities to cover housing costs.
Though buying a home may not be the universal route to building wealth, economists have found that the wealth gap between renters and homeowners is widening. Over the past 30 years, homeowners’ wealth has increased by $900,000, while renters’ has only risen by $56,000 on average.
Younger generations risk not building wealth as they delay homeownership and wait out the housing gridlock.
Related: Veteran fund manager issues dire S&P 500 warning for 2025
