THE ECONOMIST: Soaring shelter spending

The substantial and rapid increase in the price of housing, whether rented or purchased, has significant implications for millions of households. Wages have been trending upward of late, but with increases in the cost of many items even as overall inflation moderates, many people continue to struggle. The spike in home and apartment prices, which represent the largest expenditure category for most families, is posing difficulties throughout the country. Let’s take a brief look.

Between the beginning of the pandemic in early 2020 and the end of last year, the median price of existing US homes jumped from $280,000 to more than $380,000, with some notably higher movements at various points along the way. Simultaneously, the rising mortgage interest rates, which surfaced as the Federal Reserve began to tighten monetary policy, further contributed to affordability issues.

Another source of concern is apartments. When the COVID-19 pandemic began, rents had been rising slightly, but the pace of increase had been trending downward as new units steadily came online. Through the first year of the pandemic, national rental rates actually dropped modestly. By the spring of 2021, however, they began to surge. According to industry sources, the cost of rental housing increased by 15-20% on an annualized basis during the latter half of 2021 and early 2022. Although there has been some recent respite, median rent remains 20% above levels observed in 2020. Over half of US renters now spend 30% or more of their monthly income on housing and utilities, a threshold which points to financial distress.

While certainly not immune to spiraling housing costs, Texas has a significant cost advantage relative to much of the country. The median home price in the state according to recent estimates is $336,400, which is significantly below the nationwide median and even further below those of many other states, such as California ($793,600) and virtually all of the northeast. In fact, Texas ranks among the most affordable areas, even while exhibiting exceptional population and economic expansion. Recent information indicates average monthly apartment rental rates across the US of $1,702, while the norm in Texas is $1,451. California is $2,531, and many states in the northeast are well over $2,000.

Housing affordability is a critical issue as supply chain problems fostered by the pandemic limited supply and inflation and interest rates have escalated, but Texas remains in a strong competitive position. In fact, that’s one reason the state is attracting in-migration from around the country, including among younger age groups and skilled workers (a topic for another day). As units catch up and mortgage rates moderate, we are beginning to experience some relief. For many households and individuals, it couldn’t come too soon. Stay safe!