If you need evidence of how wages have not kept up with inflation, consider this: The average U.S. employee would have had to work more than 64 hours to afford the typical rent payment in September 2022, according to data from Zillow. That’s an increase of eight full hours compared to the same month two years earlier.
Rents across the United States have soared to record levels this year amid limited inventory and heavy demand, driven in part by expensive home values that have priced many would-be buyers out of the market. In March alone, median rents in the U.S. rose at a peak rate of 17.5%, according to Rent.com. They continued to rise in double-digits in ensuing months.
Earnings have simply not kept up — especially when you account for inflation. Real average hourly earnings declined 3% from September 2021 to September 2022, according to the U.S. Bureau of Labor Statistics.
“Rents have grown much faster than incomes, putting the squeeze on renters’ budgets,” Jeff Tucker, senior economist at Zillow, told Business Insider.
The typical American renter spent more than 46% of their income on rent in September, Benzinga reported — well above the standard 30% you would ordinarily budget for rent.
Zillow data compiled since 2015 show a fluctuation in the number of hours you need to work to afford average rent. Those hours took a big dip early in the COVID-19 pandemic when demand for new rentals fell sharply. But things have reversed course since the start of 2021, with the number of work hours mostly moving higher.
However, that should change soon as more inventory comes on the market. Research from Rent.com shows that the median monthly rent in September was $2,002, a 2.5% decline from August. Although September rental rates grew 8.8% on a year-over-year basis, that was down from a 12.3% gain in August and marked the first time since September 2021 that the growth rate was in single digits.
Meanwhile, the median weekly earnings of the nation’s 120.2 million full-time wage and salary workers were $1,070 in the third quarter of 2022, the BLS reported. That represented a gain of 6.9% from the previous year, meaning wage growth is moving much closer to rent growth.
“Rent growth will likely slow further as the Federal Reserve continues to raise interest rates,” Taylor Marr, Redfin’s deputy chief economist, said in a September press release. “Higher interest rates impact the rental market because they put a damper on spending power in the economy as a whole, including renters’ budgets. Growth in rents is also likely to be slowed by a boost in rental supply. There are nearly a million rental units under construction that will hit the market in the coming months and years.”
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