We're going to have some fun exploring some of the trends in the average American household spending data contained within the 2017 Consumer Expenditure Survey (CEX), where we'll start with what Americans are paying to either own a home or to rent a residence in the United States.
The chart below shows all the historic data recorded for the amount that all American household "consumer units" have paid on average if they're buying a home, where they pay principal and interest on a mortgage, or if they are renting their dwelling from 1984 through 2017.
In this chart, you can see where the cost to buy a home in the U.S. rose rapidly before peaking in 2007, after which, the cost to own crashed until 2016, where it has recently started rising. Meanwhile, we can see that the cost to rent a dwelling has steadily increased without serious interruption from 1984 through 2017, where the rate at which American household expenditures for rent have grown at a faster pace since 2005 than they did in the 20 previous years.
It's important to note here that the data reported by the Consumer Expenditure Survey is spreading all these payments out over all household consumer units in the United States. In 2017, those 130,001,000 households include 48,231,000 that pay rent and 47,129,000 that have mortgages. The remaining 34,641,000 households own homes with no mortgages, and thus have $0 expenditures for either mortgage principal and interest payments or for rent.
We can do some back-of-the-envelope math to work out what the average rent payment or mortgage principal plus interest payment is for the Americans who have these payments. In the case of rent, we can start with 2017's $4,167 average annual expenditures on rented dwellings and multiply it by 130,001,000 households to get the aggregate amount of rent paid in the U.S. according to the 2017 CEX survey of $541,714,167,000. Dividing that amount by 48,231,000 renters gives us an annual average rent of $11,232. To get to the average monthly rental payment for the renters surveyed by the BLS and Census Bureau, we divide by 12 to find out that it is $935 per month.
That figure is lower than the "record-high average of $1,405 per month" rent figure that RentCafe estimated using data from Yardi Matrix covering apartments in cities with over 100,000 residents. The CEX data also covers smaller population centers, so it's reasonable that its reported rent figure would be less than that figure, but we should note that it is also likely a record high.
Looking at mortgage holders, the average principal paid in 2017 was $1,839 and the average mortgage interest and other charges paid was $3,265), which combined for an average mortgage payment of $5,104 for all 130,001,000 American household consumer units. Doing similar math to what we did for rent, we came up with an average monthly mortgage principal plus interest payment of $1,173 for Americans buying their homes, which is about 25% higher than the average monthly payment of American renters. Or if you prefer, in 2017, the average rent in the U.S. costs 80% of what the average payment to a mortgage lender is.
In doing this analysis, we're omitting other costs that are often included in mortgage payments, such as property taxes and homeowner's insurance. We may come back and revisit the topic at some point in the future, but since you've now seen how to do the math, if you want factor those expenditures into it, you're more than welcome to beat us to the punch!
As we close, we'll leave you with the immortal wisdom of Jimmy McMillan, who back in 2010, represented New York's The Rent Is Too Damn High Party in that state's election for governor.
In 2018, he would be a much better governor for New York than any of the current candidates!
References
Szekely, Balazs. National Apartment Rents Hit New Milestone, Demand for Small Apartments Catches Up with Family-Sized Rentals. RentCafe Blog. [Online Article]. 4 July 2018.
Lane, Rachel. U.S. housing rents hit record-high average of $1,405 per month. MoneyWatch. [Online Article]. 6 July 2018.
U.S. Bureau of Labor Statistics and U.S. Census Bureau. Consumer Expenditure Survey. Multiyear Tables. [PDF Documents: 1984-1991, 1992-1999, 2000-2005, 2006-2012, 2013-2017]. Reference Directory: https://www.bls.gov/cex/csxmulti.htm. Accessed 11 September 2018.
U.S. Bureau of Labor Statistics and U.S. Census Bureau. Consumer Expenditure Survey. Table 1702. Housing tenure and type of area. [PDF Document]. Accessed 11 September 2018.
Labels: data visualization, math, personal finance, real estate
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