The latest Consumer Price Index (CPI) report indicated that costs for a standard basket of consumer spending have risen by 3.2% in the last year. But costs have not risen equally in all categories. Instead, some categories are seeing higher costs than others. Notably, shelter costs have risen by 7.7% in the last 12 months.
Let’s explore why shelter costs are rising, how much households should spend on shelter, and ways to actively lower your housing costs.
Shelter Costs are Rising
With the latest CPI showing falling costs in most categories, rising shelter costs stand out from the crowd. According to the report, “the index for shelter was by far the largest contributor to the monthly all items increase, accounting for over 90 percent of the increase.”
Rising rates are part of the reason shelter costs are rising. For potential homeowners, higher rates may start to put a mortgage out of reach. Renters are not immune to higher shelter costs. In 2023, the median monthly rent for the nation hit $1,180, which represented an almost 9% increase in costs.
With rising housing costs, many households are feeling the pinch.
How Much Should You Spend on Housing?
With the average cost of housing rising, it’s natural to wonder how much you should spend on housing in the first place. As a general rule of thumb, many experts recommend spending 30% or less of your gross income on housing costs.
The idea behind this rule is to keep your housing costs manageable. If your housing costs are over 30% of your income, the government considers your household ‘cost-burdened.’
Of course, the less you can spend on housing, the more space you’ll have in your budget for other things. For example, households with a high debt burden might need to keep their housing costs much lower than the 30% threshold to cover their debt payments comfortably. Or if you have other financial priorities, like retiring early or traveling the world, keeping your housing costs as low as possible can make all the difference.
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How to Lower Your Housing Costs
Keeping a roof over your head is essential. Whether you are struggling to keep up with rising housing costs or simply want to put more buffer in your budget, it might be time to find a creative way to lower your housing costs.
Here are some helpful strategies to help you save on housing costs:
- Downsize your living space: In general, you’ll pay more to live in a larger space. If possible, consider downsizing your living situation. A smaller place could leave more breathing room in your budget.
- Expand your search radius: Living in the center of town is convenient. But it’s usually possible to find more affordable housing options away from the city center. Consider moving to a new part of your city to tap into lower housing costs.
- Look beyond your city: Some areas of the country have much higher housing costs than others. If you have an opportunity to work remotely, moving to a more affordable location could be a game-changer for your budget.
- Try house hacking: House hacking involves buying a place with more space than you need. Once you have the space, you can rent it out to offset your housing costs. In some situations, you might be able to live for free. Buying a multi-family property, such as a duplex, or a large single-family home with rooms to rent out could significantly lower your housing costs.
The Bottom Line
It’s undeniable that housing costs are rising across the board. But as you work to get a handle on your housing costs, a little bit of creativity can go a long way.
If you want to lock in homeownership with the help of a mortgage, check out your top options today.