How’s the economy doing? Your answer may depend on whether you own your home.
The newest data shows that renters are struggling more financially, while homeowners continue to reap the rewards of refinancing during the pandemic when mortgage rates were at historic lows.
The growing divide has complicated the Fed’s efforts to bring down inflation, with homeowners propping up consumer prices with their discretionary spending power.
"The post-pandemic economy is treating people very differently, creating a headache for central bankers," Jeffrey Roach, chief economist of LPL Financial, wrote in a research note this week. "The extreme differences can often get traced back to living situations, as renters have a very different experience than homeowners."
'Unbearable for renters'
Since the start of the pandemic, rents have increased by more than 20%, Roach noted, with renters paying about $370 more each month on average.
"A difficult housing market for people across the country became, in many cases, almost unbearable for renters across the country," Shamus Roller, executive director of the National Housing Law Project, told Yahoo Finance.
How unbearable? Nearly 1 in 5 renters (19%) reported being behind on their rent at some point in the past year, a Federal Reserve report this week found, up from 17% in 2022.
They were also more likely to report not paying all their bills in the previous month than homeowners, even when controlling for income. Across each bill type — water, gas, or electric bill or a phone, internet, or cable bill — renters had higher rates of nonpayment.
"Even if they're not struggling to pay rent, rent is consuming such a large part of their income because they have very little left over for the other things in life and that creates anxiety," Roller said.
"They feel a level of economic insecurity … in the midst of an economy that's doing very well."
'If you own a home, you feel better'
The fortunes of homeowners look a lot different.
Roughly a third of homeowners who had a mortgage refinanced in 2020 or 2021 when mortgage rates hovered around 3% or lower, Roach wrote. As a result, they saved approximately $220 per month on average, with their mortgage payments taking up a nearly historically low share of their disposable income.
And unlike for renters, a mortgage payment is a "fairly predictable cost" going forward, Roller noted, making it easier to budget for future expenses.
"I think if you own a home, you feel better about that," Roller said.
At the same time, home prices have only gone up since the pandemic, creating a record level of home equity that owners can tap through refinancing or home equity loans and credit lines.
That extra cash "added to the spending splurge," Roach wrote, "and created a headache for policymakers dealing with an economy less sensitive to interest rate policy."
Homeowners are more likely to own stocks than renters, so they have also benefited from the handsome gains in the stock market over the last year and a half.
To be sure, homeowners have had to absorb higher homeowners insurance costs.
And those who purchased in the last two years when mortgage rates doubled during the Fed’s inflation-fighting campaign are shelling out $2,100 on average per month on their mortgage payment, or $700 more than those who bought before the pandemic, the Fed study found.
But more homeowners remain in a better financial position than before the pandemic and that has "kept the economy out of the doldrums," Roach wrote.
The question remains how long that will last.
Janna Herron is a Senior Columnist at Yahoo Finance. Follow her on Twitter @JannaHerron.