It's costing tenants more money than ever to rent a standalone home.
Ask anyone who's trying to buy a home these days, and you'll hear that it's really difficult. That's due in part to a lack of inventory, but also to competitive mortgage rates that are fueling buyer demand and causing home prices to rise.
But it's not just homes available to purchase that have soaring prices. Rent prices for single-family homes are also up, and if that trend continues, it's apt to put a real strain on a lot of household budgets.
Why are rent prices up?
Single-family home rents rose 5.3% in April of 2021 compared to the previous April, reports CoreLogic. That's the largest year-over-year gain in nearly 15 years.
Why are rent prices climbing for detached homes? Part of it likely has to do with an uptick in demand.
For many families, single-family homes became more attractive than homes in multi-unit apartment buildings during the pandemic. Renting a single-family home gave people more room to spread out. And over the past year, it's also meant not having to share an elevator, laundry room, or other common areas with fellow tenants during a massive health crisis.
And as mentioned above, home values have risen on a whole, so landlords may be facing higher property taxes as a result. As such, they may be seeking to pass those costs on to their tenants.
Let's also remember that a lot of landlords have seen their income take a hit over the past year or more due to the eviction ban that's been in place since the start of the pandemic. Landlords may be raising rent prices to compensate for that loss of revenue.
Can you afford a rent hike?
If you rent a single-family home or are looking to do so, it's important to not get in over your head. As a general rule, you should not spend more than 30% of your take-home pay on monthly rent.
Now, there are a few exceptions to this rule. If you live in an area where home and rent prices are always inflated, like New York City, you may have to spend a higher percentage of your income on rent. But in cities like New York, you also might get away with not having a car, so lower transportation costs could help offset higher housing costs.
But generally speaking, sticking to that 30% threshold is a smart idea. So if you're in the market for a new single-family rental, you may want to give yourself plenty of time to scope out affordable options. And if you're already renting a single-family home and your landlord notifies you of a rent increase, try to push back. If you've been a tenant in good standing for quite some time, you may be able to sway a landlord to leave your rent where it is or impose a more modest increase instead.
The housing market today is pretty crazy, and many buyers are getting in over their heads by taking on mortgages they can't afford. Do yourself a favor and don't make the same mistake by renting a home that's way outside your financial comfort zone.
Ready to buy a house: See The Ascent's guide on how much house you can afford.
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