No matter which side of the political divide they're on, many Americans agree on one fact: Rent is eating up too much monthly income, and buying a home these days feels impossible.
The housing crisis shows no sign of easing, despite the solutions politicians are promising, and it stems from basic econ 101: supply and demand.
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We need another 4.5 million homes in the U.S., which is one reason housing prices are still so high, according to a summer 2024 Zillow analysis. The shortage has contributed to an increase in the cost of renting and buying.
And even though new apartment construction is approaching a 50-year high — with 500,000 units completed in 2024 alone — there is simply not enough housing to meet demand.
There is some good news on the horizon: By some estimates, more than 2 million rental apartment units will be available to U.S. residents by 2028, according to RentCafe.
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Rental prices increase as apartment supply lags
In the meantime, U.S. rents continued to grow at a slow and steady pace through August, posting a year-over-year gain of 2.4%, according to Corelogic.
High-end rents outpaced overall growth slightly, rising by 2.9% year over year in August. Low-end rent prices dropped by -0.2% during the same period.
Of the 20 tracked metros, seven posted increases of 4% or more, with Seattle topping the U.S. for annual rent growth in August. At the same time, rents in Austin, Texas slipped by -2.3% and Phoenix prices were flat.
Related: Housing affordability may see major changes in 2025
"Everyone knows states like California and New York are severely starved of housing supply (which then leads to misdirected blame for high costs/rents), but some might be surprised to see undersupply stats in higher-supplied states like Texas," writes Jay Parsons, a rental housing economist with Madera Residential in Frisco, Texas.
"The Lone Star state ranked second both for total underproduction (at 320k) and worsening from 2021-22 (13.6k). How could that be?" he asked. "Texas probably produced more new housing than any other state."
There are a few things, Parsons explains. First, "As big as supply is, demand has been even bigger." Second, "The period of study — 2021-22 — marked the era of peak occupancy and rent growth before the apartment supply wave hit." And third, "Most of the supply is coming in at the highest price points; and while there’s ample demand for that product and will continue to be, we need to make a bigger dent at the lower end of the market."
Americans downgrade housing to save money
As mortgage rates ease, even slightly, the worst might be over, but many people still feel pinched.
One way they are trying to reduce the amount of money they spend on housing each month is to "downgrade," according to a new report from the Bank of America Institute. The Bank of America Institute studies the bank’s proprietary data.
In this context, downgrading means moving to a less expensive rental in the same region where they currently live.
The trend is most prominent in the Northeast, particularly among those with high incomes who appear to be downsizing to less-pricey digs when leases expire and landlords bump up rents.
Bank of America customers with higher incomes who stayed in the same area in the Northeast paid 6% less for their new rents in the third quarter of 2024.
"In our view, this is also due, in part, to consumers seeking value in their living spaces, as rents accelerate faster in the Northeast," according to the report. "The data suggests that consumers are increasingly pushing back against higher rents, particularly at the top end of the rental market. If the labor market were to deteriorate sharply, we would expect these trends to increase further."
Related: Landlords use a sneaky tactic to raise rents, US lawsuit says
The BofA report suggests people who move within the same metropolitan statistical area (MSA) make up a larger percentage of people who are moving. "This may reflect some slowdown in hiring and consumers' increased labor market-induced anxiety in making large cross-city moves," writes Joe Wadford of Bank of America in his analysis of the report.
A surprising reason people are moving, but still staying close to 'home'
One of the reasons trading spaces in the same area may be attractive is moving and transportation costs may not be as high as with a more significant move. And of course people who relocate relatively close by don't have to leave all friends, family and everything else familiar behind.
The rise in the cost of living, especially rent, has been front-page news for several years. The Bank of America Institute report used deposit data to determine that median rent payments were up 3.7% year-over-year in September 2024.
Overall, rents jumped a whopping 30% between 2019 and 2023, according to Zillow. Even though wages also went up during that period, they have not kept pace with rent increases.
Cost of living is lower in the Midwest and South
Some cities were especially hard hit. Consider New York where rents grew seven times faster than wages last year, also according to Zillow.
That's one reason people who live in the West and Northeast are fleeing to less expensive cities in the South and Midwest.
According to the BofA Institute's internal data, and continuing a trend that started at the beginning of the pandemic, people from the coasts are moving to cities like Indianapolis, Columbus, Cleveland and Austin. Other popular relocation destinations include Denver, Las Vegas, San Antonio and Phoenix.
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