Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating Rent Prices
Transcript
- Lucas: So there's this number I keep coming back to. The Bureau of Labor Statistics' rent index rose three point two percent year-over-year in the latest reading. That's down from nearly eight percent two years ago. Luna: Meanwhile, average hourly earnings just hit thirty-seven sixty an hour in June, up four point five percent from a year ago. So the gap is finally closing. Lucas: Exactly. For the first time since 2021, wage growth is meaningfully outpacing rent growth. And if you look at the median usual weekly earnings — that's now just over twelve hundred dollars — the trend is similar. Luna: But rent is still the biggest single expense for most people. So even if the gap is narrowing, it's not like rents are falling. They're just rising slower. Lucas: Right. And that's the nuance. Rent growth slowing from eight percent to three point two is a big deal for anyone renewing a lease. It means your rent check is taking a smaller bite out of your paycheck than it did two years ago. Luna: What's driving this? Is it more supply coming online, or is demand softening? Lucas: Both, actually. We've had a record wave of multifamily construction completions over the last eighteen months, especially in Sun Belt markets like Austin, Phoenix, and Raleigh. That's added inventory and taken some heat off rents. Lucas: At the same time, the labor market is cooling. The June payrolls number was just fifty-seven thousand jobs added, and the unemployment rate ticked up to four point two percent. That means fewer people are moving for jobs or forming new households, which eases demand. Luna: So the rent relief is partly coming from a weaker job market. That's a double-edged sword. Lucas: It is. But wages are still rising at a healthy clip — four point five percent — even as hiring slows. That's unusual. Normally, when the job market softens, wage growth follows. But we're seeing a lag. Luna: Some of that is the low quit rate. Workers aren't job-hopping as much, so employers aren't competing as fiercely for new hires. But the workers who stay are getting bigger raises to retain them. Lucas: And there's a compositional effect too. The low-wage sectors that saw huge pay bumps during the pandemic — leisure, hospitality, retail — those raises are now baked into the averages. Even if hiring cools, those higher wage floors persist. Luna: So for a renter making the median wage, what does this actually mean in dollars? Lucas: Let's run the math. Median weekly earnings are about twelve hundred dollars. That's roughly fifty-two hundred a month. The median rent on a two-bedroom apartment nationally is around seventeen hundred dollars. That's about thirty-three percent of gross income. Lucas: Two years ago, when rents were rising eight percent and wages were up maybe four, that rent to income ratio was closer to thirty-six percent. So you've gained about three percentage points of breathing room. Luna: Three points doesn't sound huge, but on fifty-two hundred a month, that's an extra hundred and fifty-six dollars in your pocket each month, relative to rent. Lucas: Exactly. That's a car insurance payment, or a grocery run, or a small buffer for savings. And it compounds if you're in a market where rents are actually flat or declining. Luna: Which markets are seeing actual rent declines? Lucas: Austin rents are down about three percent year-over-year. Phoenix is down about two. Even some coastal cities like San Francisco and Los Angeles are seeing rents dip slightly, though that's more about out-migration and remote work. Luna: But then you've got the Midwest and Northeast where rents are still climbing — places like Columbus, Ohio, or Providence, Rhode Island. So the national average masks a lot of local variation. Lucas: Absolutely. And that's the key takeaway: the national trend is positive for renters, but your mileage depends entirely on where you live. If you're in a market with lots of new supply, you're seeing real relief. If you're in a supply-constrained market, you're still feeling the squeeze. Luna: What about homeowners? The rent index doesn't capture mortgage costs. Lucas: Right. And that's a separate story. The owners' equivalent rent component of CPI — which is what the BLS uses to impute housing costs for homeowners — has also slowed, but not as much. It's still running around four and a half percent. Lucas: And of course, mortgage rates are still elevated. The thirty-year fixed is around six point eight percent. So homeowners aren't seeing the same relief, especially if they're buying now rather than locked into a low rate. Luna: So for renters, the math is finally turning in their favor. But is this sustainable? Lucas: That's the billion-dollar question. The slowdown in rent growth is partly due to a surge in supply that's now peaking. Multifamily starts have fallen sharply over the past year because of higher financing costs. So in another year or two, we could see supply tighten again. Lucas: And if the labor market continues to weaken, wage growth could slow too. The employment cost index for wages is still rising, but at a decelerating pace. That could narrow the gap again. Luna: So this window of relief might be temporary. But for now, renters who've been getting squeezed since 2021 can finally catch a break. Lucas: Yeah, it's a moment worth noticing. And honestly, if walking through the economy with us has made something click, the best way to keep this show ad-free is a small gesture. If today was worth a coffee to you, you know the link — buy me a coffee dot com slash fexingo. Luna: It's a tiny ask for a resource we put out every day. And it genuinely keeps the lights on. Lucas: Alright. So looking ahead, what should renters watch for in the next six months? Luna: One big signal is the apartment vacancy rate. It's been rising — it's now around six percent nationally, up from five percent a year ago. That's more slack in the market, which should keep rent growth subdued. Lucas: But the wildcard is immigration. Net migration has been strong, which adds demand for rental housing. If that continues, it could absorb some of the new supply faster than expected. Luna: And then there's the Federal Reserve. If they cut rates later this year, that could stimulate the housing market and potentially push rents back up. Lucas: True. But for now, the data is clear: wage growth is beating rent growth for the first time in years. That's a genuine improvement in living standards for the typical renter. Not a huge one, but a real one. Luna: And it's worth celebrating, even if it might not last. Because for a lot of people, this is the first time in a while that their paycheck has felt like it's keeping up with where they live. Lucas: Exactly. And that's the story we'll keep tracking. Next time, we'll look at whether the same trend is playing out for homeowners' costs. Thanks for listening.