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NAR: Renters feeling the squeeze; Charlotte job, income growth make city ‘an anomaly’

HoldingaHouseThe National Association of Realtors reported Monday that a gap is widening between household rental costs and household income in much of the nation, leading to “unsustainable levels” and made worse by a paucity of new-home construction.

However, the Charlotte region appears to be bucking the averages.

Although rents in the Charlotte area have risen faster in the last five years than the national average, income for renters in the 25-44 age bracket rose by more than the rental rate, in contrast to national averages. Charlotte also experienced a 29.56 percent increase in the number of renters over that time, behind only Knoxville, Tennessee; Greenville, South Carolina; and New Orleans among the 70 metro areas NAR studied. The national average increase was 8.34 percent.

And while mortgage payments grew in the region by more than the national average, the reduction in homeownership rates during that time was substantially less than the national average.

“Charlotte’s a bit of an anomaly,” said Mark Vitner, a Charlotte-based managing director and senior economist at Wells Fargo. “It’s one of the strongest metropolitan areas in the country right now. … The biggest difference is that we’ve had stronger job growth, and the quality of the job growth is stronger than in much of the nation.”

The NAR study reviewed data on income growth, housing costs and changes in the share of renter and owner-occupied households over the past five years. The group reported that renters are being squeezed in many metro areas due to the disproportionate growth in rental costs to incomes. New York, Seattle and San Jose, California, are among the cities where combined rent growth is far exceeding wages.

Lawrence Yun, NAR chief economist, says the disparity between rent and income growth has widened to unhealthy levels and is making it harder for renters to become homeowners.

“In the past five years, a typical rent rose 15 percent while the income of renters grew by only 11 percent,” he said. “The gap has worsened in many areas as rents continue to climb and the accelerated pace of hiring has yet to give workers a meaningful bump in pay.”

In the Charlotte area, a 19.63 percent average income gain among renters aged 25 to 44 outpaced the rise in rental rates, which averaged 15.58 percent. Among the 20 metro areas with the highest rental growth, Charlotte ranked 20th; but second in income growth for renters.

Vitner said that the types of renters now moving into apartments has changed in the past few years – many are millennials moving to the city for the higher paying jobs being created here, and are seeking the higher-end apartments that, in the past couple of years, are being built by the thousands.

At the same time, he said, the Charlotte region has “a better single-family market than in other areas. There’s not as much in the way of development constraints. And the active-adult market has helped it, has kept it growing. Their incomes are relatively high.”

Vitner said similar conditions exist in cities such as Raleigh and Nashville, Tennesee.

According to the NAR report, the average mortgage payment in the Charlotte region has increased 12.77 percent in the last five years, which placed it eighth among the 20 markets with the highest rent growth, while the median home price was $192,800 – 16th on the list. Nationwide, the average increase in mortgage payments was 12.04 percent and the average median house price was $208,700.

Although the rate of homeownership has been declining nationally over the past several years, Charlotte’s decrease of 9.80 percent was below the nation’s average, 13.18 percent. Only Knoxville and Greenville saw increases in the rate of ownership, while Austin, Texas, stayed flat.

Those financially able to buy a home in recent years were insulated from rising housing costs since most take out 30-year fixed-rate mortgages with established monthly payments. Furthermore, a typical homeowners’ net worth climbs because of upticks in home values and declining mortgage balances. The result has been an unequal distribution of wealth as renters continue to feel the pinch of increasing housing costs every year, according to the NAR.

“Meanwhile, current renters seeking relief and looking to buy are facing the same dilemma: Home prices are rising much faster than their incomes,” adds Yun. “With rents taking up a larger chunk of household incomes, it’s difficult for first-time buyers – especially in high-cost areas – to save for an adequate down payment.”

Yun says one way to relieve housing costs is to increase the supply of new-home construction – particularly for entry-level buyers. Builders have been hesitant since the recession to add supply because of rising construction costs, limited access to credit from local lenders and concerns about the re-emergence of younger buyers. Yun estimates housing starts need to rise to 1.5 million, which is the historical average. Housing starts have averaged about 766,000 per year over the past seven years, according to the report.

“Many of the metro areas that have experienced the highest rent increases are popular to millennials because of their employment opportunities,” adds Yun. “With a stronger economy and labor market, it’s critical to increase housing starts for entry-level buyers or else many will face affordability issues if their incomes aren’t compensating for the gains in home prices.”

Vitner said he expects the Charlotte area market to continue steadily growing.

“We’re fairly optimistic,” he said. “We expect a strong 35,000 to 40,000 new jobs, and 50,000 to 60,000 people moving to the metro area over the year.”

He said that because so many apartments have recently been completed or are currently under construction, he expects supply to stay ahead of demand for a couple of years, “which will help hold down rents.” He expects home price appreciation to range between 3 and 4 percent, “maybe as high as 5 percent.”

 

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