To See How the Recession Is Lingering, Look at All the Renters
Filed under: Recession, Personal Finance, Renting, Home Rental
Ever since the housing crisis and financial collapse of 2008, more Americans have been renting their homes rather than buying them, and a new report finds these renters are “financially fragile” compared to homeowners.
The FINRA Investor Education Foundation study finds that renters are twice as likely to say it is “very difficult” to cover their monthly bills. It defines financially fragile as the inability to respond to an economic shock. Could you come up with $2,000 in 30 days to respond to an emergency? The FINRA study shows that 58 percent of renters say they probably or definitely couldn’t.
The renter population is generally younger, lower income, single and more likely to be more racially diverse than the overall population, according to Gary Mottola, research director of the foundation and author of the report. “What jumps out at me,” he said, “is the magnitude of the differences. Look at race, look at gender, look at age. We see big differences in the ability of renters to handle a financial crisis.”
It’s Not a Pretty Picture on That Rented Wall
It’s certainly not a surprise. In many cases, if people had the money to buy a home, they would. “We know that renting and low income is highly correlated,” Mottola said, “but we can’t say one is driving the other.” But he said the study of more than 25,000 people paints a troubling portrait.
Renters have lower rates of financial literacy and are more likely to experience a large drop in income. Only 22 percent of renters say they have saved enough money to cover their expenses for three months if they lost their job or had a medical or other emergency. By comparison, half of all homeowners had such an emergency fund. Renters are also more likely to carry credit card debt, student loans and medical debt.
The effects of the Great Recession forced millions of American homeowners out of homes lost to foreclosure. Real estate marketing website Trulia (TRLA) estimates an additional 875,000 households now rent their homes than would have been the case has the 2008 housing crisis never occurred. As a result, there are fewer apartments available, and the rental prices have been increasing at a faster rate than home prices. Real estate research firm Reis (REIS) recently reported that the tight market for apartments has sent rental costs up for 23 straight quarters — ever since the recession officially ended in 2009. Prices have jumped by 15 percent and are likely to continue to rise over the next year or so.
According to the FINRA report, 74 percent of renters have household incomes below $50,000, compared to 41 percent of homeowners. Renters are also twice as likely to be unemployed or temporarily laid off. “There’s a troubling combination of factors,” according to Mottola. “You have a population with a low level of financial literacy, more likely to encounter problems and less likely to be able to handle them.”
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