The economic downturn that began in 2008 severely affected many people across the nation. The consequences have been long lasting as the gradual recovery continues 6 years later. With the onset of high unemployment rates, home foreclosures, diminished wages, and rising student loan debts, more Americans have resorted to renting during the recession and its slow recovery. The demand for rental units has sent shockwaves throughout the rental market and has caused the number of single-family rental units to elevate accordingly. In the face of unprecedented demand, rental prices continue to increase as American families struggle to recover from the Great Recession.
During the recession, the unemployment rate skyrocketed as American workers from all sectors of the economy lost their jobs. In a matter of a year, the unemployment rate rose from 5% to over 10% during 2008-2009. To make matters worse, the percentage of the long term unemployed peaked at 45% of the total unemployed population in 2011 and still remains high today at a rate of 37%, which is more than double the pre-recession level of 18%. These bouts of elongated unemployment detrimentally affect US families permanently as current financial equity and future potential earnings plummet with each passing week.
Foreclosures became rampant in 2009 and 2010 as homeowners could no longer make payments on their mortgages, many of which were considered subprime. There were 4 million foreclosures during the period from 2008 to 2012, resulting in an average rate of 83,000 foreclosures a month. From 2000 to 2006, that rate was only 21,000 a month. These massive losses effectually wiped out home equity for millions of Americans. This has driven Americans to rent like never before. Some analysts predict that foreclosures could rise again in 2014 as the tax exemption passed in 2007 on mortgage debt forgiveness expired at the end of 2013.
During the recession, older Americans were hit hard and the economic effects subsequently reached the young adults of our country in a domino-like fashion. Often referred to as Millennials or Gen-Y, young Americans endured an unrelenting struggle as youth unemployment spiked to a rate 19.6% in 2010. While the youth unemployment rate has improved, it still remains high in 2014. Underemployment is another issue that is often overlooked when talking about the state of the job market. Many young college graduates have taken part-time jobs that don’t require a degree (think baristas and retail clerks) as the stagnating economic recovery continues to hamper job growth. The level of student loan debt rises each year as the cost of higher education continues to expand like the Big Bang. According to the nonprofit organization, Institute for College Access & Success, 71% of recent college graduates took out student loans last year. The average debt of those loans totaled $29,400 per borrower.
As expected, young Americans have become saddled down in student debt and stuck in low wage limbo to afford a house any time soon. First time homebuyers represented only a third of housing purchases last year, well below the historical norm. Many Americans have realized that the cost of owning a home is out of their grasp and have accepted their fate of renting. The rapid rise in home prices and mortgage rates in 2013 certainly has not helped potential home buyers. More Americans have delayed purchasing a home as the unsustainable jump in home prices do not reflect the economic reality for most Americans. According to the Census Bureau, 18% of single family homes are considered rentals, an increase from 15% in 2006. Housing markets that suffered near meltdowns in foreclosures during housing crash seemed to have the highest rates of rental occupancy. Las Vegas has a rental rate of 29% for single family homes, a large jump from 19% in 2006. Stockton, CA has a share of 32% (the highest in the top 100 metro areas), up from 24% in 2006.
Not only has the popularity of renting risen, the cost of rent has surged upwards too. According to the Harvard Joint Center for Housing Studies, more than 50% of US renters spend more than 30% of their income on housing for the first time ever. This is frighteningly clear for two reasons. Real median income has fallen 13% from 2000 to 2012 and the demand for rental units has spiked causing rental prices to rise. In 2011, 11.8 million low income renters vied for 6.9 million rental units considered affordable at that income threshold, equating to a shortfall of 4.9 million units. On top of monthly rental payments, renters are also subjected to rising utility costs such as water, electricity, sewage, and natural gas. Additionally, most landlords require their tenants to purchase renters insurance to reduce financial risks for both parties.
Although the economy is gradually recovering to its pre-recession levels, many Americans are still reeling from the devastating effects of the recession in 2008. The economic and social landscape for both old and young Americans has been altered irrevocably. Unemployment and underemployment remain at unacceptable levels, pre-recession equity has been wiped out, wages have diminished and become stagnant, and student loan debt is being called the next bubble. Welcome to the era of renting in America.