A record share of renters in the U.S. are spending more than 30% of their income on housing.
The positive side is that rent growth is slowing down after two years of rapid increases. This means that renewing your current lease or signing a new one may not lead to a significant hike in housing costs.
However, the downside is that rents are now at a level that many Americans cannot afford.
According to an analysis by researchers at Florida Atlantic University, Florida Gulf Coast University, and the University of Alabama, rent growth has reverted to a more typical annual pattern. In February, rents nationwide increased by 3.5% compared to the previous year, with the average rental unit price standing at $1,959, as per the researchers' Waller, Weeks, and Johnson Rental Index.
"A rental increase of between 3 and 5% is seen as normal, so these numbers suggest that the rental crisis is over in most parts of the country," said Ken Johnson, a real estate economist with FAU's College of Business.
While rents are increasing in some parts of the North and the Midwest, Johnson noted that the growth is not as rapid as in previous years. During the peak of the coronavirus pandemic between 2021 and 2023, rents surged, with renters facing increases of over 15%, according to Apartment List data.
Overall, this indicates that rent appreciation is stabilizing, and rental markets across the country are starting to normalize," Johnson added.
However, this does not mean that rent prices are becoming more affordable. On the contrary, renters should expect an extended period of affordability challenges until incomes rise to match the increasing rents, the researchers warned.
A record number of renters in the U.S. are spending more than 30% of their income on housing, which is considered excessive. In states like Florida, 54% of renter households are cost-burdened, meaning their rent takes up too much of their income, according to the Atlanta Fed's rental affordability tracker.
Housing is generally deemed affordable if it costs no more than 30% of one's gross income. However, in 10 metro areas, households need to earn "well over $100,000 to avoid paying more than 30% of their income in rent," the researchers noted.
The real median household income was $74,580 in 2022, according to the U.S. Census Bureau. Census data also indicated that 38% of households earned more than $100,000 annually.
MarketWatch calculated the gross income required over 12 months to afford rent in the most expensive cities in the U.S., assuming a renter household would spend only 30% of their income on rent, using the average rent in each city from the researchers' index.
