Oct 21, 2023 - Economy

High rents and mortgage rates squeeze Gen Z

U.S. share who spend 30 percent or more of their income on housing, 2022
Data: Census Bureau; Note: Based on household income. Householder is the person/people in whose name the housing unit is owned or rented. Renter housing costs include monthly contract rent and utilities paid by the renter while owner costs include monthly mortgage payments and other debts, utilities, real estate taxes, insurance, etc.; Chart: Simran Parwani/Axios

With rents hovering at historic highs and soaring mortgage rates pushing up the cost of buying a house, making the leap to homeownership has seemingly never been harder.

Why it matters: Owning your own home is a critical step in building wealth in the U.S., but younger Americans increasingly can't swing it, and instead are stuck renting — at steep rates that are eating into their income.

  • Meanwhile: Older Americans on fixed incomes are especially burdened by high housing costs, contributing to rising homelessness among Baby Boomers, The Wall Street Journal reports.

Driving the news: A surprising boost in rent prices fueled most of the increase in inflation in September, per the latest Consumer Price Index data.

The big picture: One in three Gen Z-ers (34%) surveyed by Freddie Mac say owning a home feels impossible in their lifetime, up from 27% in 2019.

  • Saving for a down payment is the biggest obstacle, they say: It's one reason the typical first-time homebuyer last year was a record-high 36 years old, per the National Association of Realtors.

What's happening: Across the U.S., pinched young people are fanning out from big cities, returning to their childhood bedrooms or moving in with partners.

Zoom in: Watching mortgage rates inch closer to 8% "is one of the most disheartening things in my life," says Nicolette Serbus, 26, who tells Axios she and her partner have hoped to leave their one-bedroom apartment for about two years.

  • The Minneapolis-area middle school teacher says 23% of her income goes toward her half of the rent.

In St. Petersburg, Fla., rent was growing faster than Gen Zer Alina Sharkey's income, so she got a new work certification to make commissions.

  • "I had to find another way to make money," says Sharkey, who tells Axios she spends 33% of her income on rent.

Zoom out: America's housing shortage has helped hike the cost of both buying and renting.

Yes, but: The vast majority of young renters are renting for lifestyle reasons, preferring the flexibility to move, RealPage chief economist Jay Parsons tells Axios.

  • Many Gen Z renters have lower incomes but also lower bills beyond rent, which allows them to live in pricier locations, according to Parsons.

Go deeper: Student loan interest has started again, adding to affordability pressures.

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