How Much Should You Be Spending On Rent?

The Weekly Recap

Good Morning! Mortgage rates trended down again for the fourth week in a row as new home sales fall to a six month low. NYC survived a heat dome and thats without the fancy new floating pools they are looking to build, Amex is trying to become the reservation king with its acquisition of Tock from Squarespace, Nvidia came back down to Earth this week after a correction, Trump and Biden debated about who would be the better oldest President in US history, Apple and Meta discussed an AI partnership and all the major banks passed the Fed’s stress test.

If you missed last weeks newsletter you can check that out here - New Reality of the Sales Market in NYC

How Much Should You Be Spending on Rent?

Prospective homebuyers aren’t the only ones that are hit hardest by high inflation and high interest rates. Renters in fact are disparately impacted by high inflation than homeowners. Where homeowners can lock in a mortgage for 30+ years at the same rate, renters are at the behest of changing market conditions every single year when it’s time to renew their lease. With some buyers being stuck as renters, there is not enough units on the ground to quench the demand for homes. According to a Harvard report, the number of people spending more than 30% of their income on rent is at a record high.

Cities vary by cost of living expenses which in certain markets like NYC, San Francisco or Los Angeles, the average person could spend upwards of 40% of their income on rent. In NYC, the rental requirements from landlords dictate that a renter, or a group of roommates combined, must make 40x the monthly rent in annual salary. The high threshold is used as a way to improve the chances that the landlord will get paid every month while the tenants will still have enough money for basic needs.

If you’re still trying to figure out the best way to stretch your money, with your ideal housing costs being around the 30-35% mark, another way to best allocate your funds is with the 50/30/20 budgeting rule. This suggests dividing up your post tax income into three main categories. 50% towards needs or essentials (rent, bills, transportation, groceries), 30% towards wants and 20% towards savings.

Following those guidelines, rent qualifies as a need but it comes down to you on how you decide how much of that 50% you want, or feel you have to, spend on housing. Your rent may be high enough that you have to make adjustments to other essentials in your budget and/or borrow from other categories. Develop a budget that acknowledges your quality of life and expenses and only take on a lease that does not overburden you from living your life or driving you into debt.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past week as well as newly signed contracts in Manhattan.

Mortgage Rate Update

The 30 year fixed mortgage rate continues to trend down, hitting its lowest levels in over 3 months. We can expect rates to continue to come down over the summer months bringing additional homebuyers to the market.

News You Can Use

• Feds Key Inflation Gauges May Offer Path to Rate Cuts Bloomberg

• US Business Activity Inches Up In June Reuters

• Big Banks Sail Through Fed Stress Tests Bloomberg

• The Heatwave Is A Reminder of NYC’s Best Activity: Staying Inside NY Post

• Federal Reserve Floats Weaker Version of Planned Bank Capital Overhaul Bloomberg

• New Home Sales Fall to Six Month Low Yahoo Finance

• US IPO’s See Best Start Since 2021 With Election Window Closing Bloomberg

• Here’s Where US Rents Are Rising- and Falling- The Fastest CNBC

• Highest Inventory of New US Home Sales Since 2008 Threatens Building Bloomberg

• With A Weakining Yen, The Bank of Japan May Raise Rates in July Reuters

• JPMorgan Says Fed Stress Test Results Is Rosier Than Its Own Estimates Bloomberg

• Why NYC’s Floating Pool Could Change Beach Access for the Entire State Fast Company

• US Borrowing Binge Risks Market Strain Financial Times

• Nvidia Enters Correction Territory Bloomberg

• Here’s How Bad Housing Affordability is Now Nationwide CNBC

• Apple and Meta Have Discussed an AI Partnership Wall Street Journal

The Deep Insight

Contact Me

Feel free to reach out to discuss more in-depth about your real estate goals, share your thoughts about my newsletter, or to share what you're experiencing in this market. Looking forward to hearing from you!