Homeowners Looking for Roommates to Afford Mortgage Payments
- Earlier this month, the Federal Reserve announced interest rates would be rising by half a point to combat inflation.
- The higher interest rates mean the cost of borrowing will be higher, so those looking to become homeowners may have difficulties doing so on their own.
- Due to high house prices and not-so-high wages, many new homeowners have turned to search for roommates to help pay for the living expenses associated with owning a home.
Earlier this month, in an effort to combat and reduce inflation, the Federal Reserve announced they would be increasing the interest rate by half a point. This course of action aims to increase the cost of borrowing and reduce consumer spending.
Consequently, people who are currently in search of a house are put in a challenging financial situation as they may be unable to pay their mortgage on their own, which has led to an increasing number of people pursuing potential housemates and home-sharing to help pay the monthly expenses.
What Caused Prices to Rise Resulting in Homeowners Looking for Roommates
During the peak of the pandemic, many people were unable to work at their regular jobs. Instead, they had to rely on various COVID-19 relief packages the United States government was offering. The total cost of these programs exceeded $4 trillion, and due to the high cost of these programs, the government had to print more money so they could pay everyone, resulting in 40% of the total money in circulation being printed in the past year.
With more money in circulation, the cost of everyday items began to rise as well, causing the inflation rate to be at its highest point since 1990. The government knew this series of events could not continue for a prolonged period as it would have severe economic impacts; which is why they increased interest rates and the cost of borrowing, to try and reduce inflation levels.
Why are Homeowners Looking for Roommates?
As mentioned above, with the cost of living increasing, homeowners searching for affordable homes realized they could not do it themselves. According to the Social Security Administration, the median household salary in 2019 was $34,248, meaning the majority of Americans are earning a wage similar to the disclosed figure.
Furthermore, the median cost of a house in the U.S. is $374,900, and the average monthly household mortgage payment in 2019 was $1,487 according to the Federal Reserve Bank of St. Louis and the U.S. Census Bureau’s American Housing Survey, respectively.
The annual amount spent on mortgage payments using the data above is $17,844, or 52% of the gross income of the average American. Obviously, with the cost of living and borrowing rising, many people have realized that they cannot afford the living expenses of owning a home. Therefore, they are emulating the living technique used by college students, finding a roommate and renting them a room to help pay for the expenses of the shared space.
Financial Implications of Homeowners Looking for Roommates
If a homeowner believes their roommate is a good fit for them and abides by their house rules, then there is one significant financial benefit.
Higher Income Levels
Many people view their home as their biggest asset, yet they do not typically try to generate income from it. However, allowing a roommate to live in the same living space generates passive income every month. The extra income allows homeowners to spend the money on the house, improving its value and potentially their income, or put it aside in a retirement savings account for when they choose to retire.
Initially, the concept of having roommates in a home may be weird as not many people take part in this type of activity. However, with the cost of homes increasing and showing no sign of coming back down anytime soon, this type of living arrangement is one that may become common in the near future.