Inflation still putting housing out of reach for many Americans

The cost of household goods and utilities is cutting into Americans’ budgets and creating further housing strife for many while the average tenant is already rent burdened.   

Although inflation cooled annually in March, prices remain stubbornly high. Annual food prices increased by 8.5 percent, but they were only down from 10.2 percent in February. 

Even so, consumer confidence reached a nine-month low this week amid fears of a looming recession, which the Fed reports is likely given recent troubles in the banking sector. 

The average tenant is rent burdened 

Tenants already burdened by soaring rent hikes are feeling the pinch of higher prices for household necessities like gasoline, food and utilities, Moody’s Analytics Deputy Chief Economist Cris deRitis told The Hill. 

“Families have less income available to spend on housing after dedicating a larger share of their budgets to these other essential items,” deRitis said. 

“Families have coped with these higher expenses by cutting back on spending where they can, moving to more distant or less desirable locations where housing is cheaper, delaying household formations, and increasing their borrowing,” he added. 

A report released by Moody’s earlier this year shows the average renter now pays at least 30 percent of their income on housing. 

Homeownership elusive even for families with two incomes 

The current economy is making a moving target out homeownership even for families with multiple revenue streams. 

Lakia Prue, a building manager in Washington, D.C., with more than 25 years of experience in the industry, told The Hill that she and her husband aspire to one day be homeowners. Yet conditions over the past several years led both to look for side-gigs, like baking, for extra income.  

Prue said there’s also concern about monthly payments, adding that she wants to know exactly how much they will owe at the end of each month. And she does not want to take on a mortgage with an adjustable rate.  

But she said she wants to be part of the American dream, and after living in the same co-operative apartment for 25 years she welcomes homeownership even if her new home might not have all the perks.   

“It doesn’t have to have a garage. It doesn’t even need a driveway. If I can park my car at the curb, I’m blessed. But if I can pull up in a driveway, I’m winning,” she said. 

Consumers are losing confidence in the market

And even as recent data shows inflation cooling, consumers are losing confidence. A survey released by The Conference Board on Tuesday showed that the group’s confidence index dropped to its lowest level since July 2022, falling for the third time in four months. 

This means consumers are more pessimistic about the direction of the business and labor markets and expect conditions to worsen in the next six months, Ataman Ozyildirim, The Conference Board’s senior director of economics, said in a statement. 

“Overall purchasing plans for homes, autos, appliances, and vacations all pulled back in April, a signal that consumers may be economizing amid growing pessimism,” Ozyildirim said. 

Wobbly mortgage rates are impacting the market 

Volatile mortgage rates have also hampered potential buyers and renters alike. Since the Fed began tightening its monetary policy to curb inflation, mortgage rates have soared.

At their height, the 30-year fixed rate mortgage rose above 7 percent after reaching historic lows during the COVID-19 pandemic. This has pushed payments too high for many prospective buyers and kept them in the rental market. 

Despite the Fed’s continued tightening, mortgage rates leveled out at the end of March and through the first half of April.  

But last week, the 30-year fixed rate mortgage suddenly jumped to 6.39 percent. And economists at real estate brokerage Redfin noted the upward shift pushed monthly payments for buyers to their highest level on record at $2,538. 

A separate Redfin report found that nationwide median rents declined annually for the first time since 2020, which is attributed partly to renters tightening budgets while prices are rising elsewhere, Redfin Chief Economist Daryl Fairweather told The Hill. 

“This is because renters have been pinched by inflation and are less willing to splurge on rent. Instead, renters are living with family or roommates instead of renting an apartment on their own,” Fairweather said. “This is a return to earth from the large jumps in rent that happened in 2022.” 

And Moody’s expects rent growth to ease further as the year progresses and a construction boom of 1 million multi-family units enters the housing market.   

“The number of single-family homes under construction isn’t quite as high but remains well above its pre-pandemic level as well. The increased supply will help to stabilize house prices and rents,” deRitis continued. 

“Assuming no significant shock hits the economy, and the job market remains healthy, both headline and rent inflation should moderate significantly over the next 12 months,” he said.

Updated 2:38 p.m. May 11