Are Rising Rents Raising Consumer Debt and Delinquency?"

 

The research brief by Neil Bhutta, titled "Are Rising Rents Raising Consumer Debt and Delinquency?" from November 2023, investigates the correlation between the significant increase in rents since the COVID-19 pandemic and the financial well-being of renters compared to homeowners. Here's a summary of the key findings and insights:

1. Significant Rise in Rents: The study observes a 30% increase in apartment asking rents in the median sample county in 2021 and 2022, with some counties experiencing over 45% growth.

2. Impact on Consumer Credit: Data indicates that credit card balances have grown more sharply for renters than for homeowners in the past two years, particularly in counties with high rent growth.

3. Increase in Delinquency: There has been a rise in credit card delinquency among renters relative to homeowners, especially in areas with significant rent increases.

4. No Evidence of Increased Migration: Despite rising rents, the research does not find evidence suggesting increased migration by renters to less expensive neighborhoods.

5. Connection Between Rising Rents and Financial Strain: The brief provides evidence consistent with the idea that rising rents may be contributing to recent increases in consumer debt and delinquency.

6. Data Sources and Analysis: The study uses anonymized consumer credit record data and county measures of rent growth derived from detailed apartment building data.

7. Differential Impact on Renters and Homeowners: The results show that renters have built up more credit card debt and are more likely to become delinquent on a credit card account than homeowners, especially in counties where rents have risen the most.

8. 2023 Trends: Although asking rent inflation has been muted in 2023, many regions still face rent costs well above pre-pandemic levels, potentially continuing the financial pressure on renter households.

This research provides valuable insights into how the housing market dynamics, particularly rent increases, can have diverse and significant impacts on different segments of the population, especially concerning their financial health and debt management.

Source: cfiresearchbrief-bhutta-nov-2023.pdf (philadelphiafed.org)