Increasing housing and rent inflation is having an effect on spending for renters, with total card spending decreasing precipitously over the past two years.
- According to new Bank of America data, renters are pulling back on consumer spending for non-rent payments.
- From early 2022 onward, renters’ spending growth began lagging behind that of homeowners against normal trends, Axios reports.
- Renters’ spending growth is negative in 2023, down 1.4% from this time last year.
Why It’s Important
Despite all of the recent improvements to the job market and stock market, housing and shelter continue to be one of the areas of the economy most driving yearly inflation, with high demand skyrocketing prices across the country. The problem has only worsened after the severe inflation spikes in early 2022, with rent inflation surpassing its 2018 to 2019 average while homeowners continue to hold onto lower mortgage rates as long as they avoid selling their homes.
As we previously reported, rent prices have seen notable improvements in 2023, but they continue to be one of the driving forces keeping inflation high.
“Renters’ spending appears to have been sapped by rent inflation, while homeowners have been somewhat insulated from higher interest rates so far,” says Bank of America.
“Higher inflation and interest rates have impacted homeowners and renters differently. For renters, surging rent inflation has been weakening their discretionary spending power for some time. According to the Census Bureau’s Consumer Price Index, rent inflation surged from around 2% [year-over-year] in 2021 to 8.8% [year-over-year] in March 2023 and has moderated only marginally in recent months. However, since the majority of US homeowners with outstanding mortgage balances have fixed interest rates which were locked in prior to recent rate hikes, those households are not yet feeling the direct impact from rising rates. Only households who have originated a mortgage since early 2022 or those with floating mortgages (1% of total mortgages outstanding prior to rate hikes) would feel the pinch.”