Nearly a decade after the 2008 recession and housing crash, much of the U.S. has fully recovered. As a result, most of the country is experiencing a rise in the cost of living, especially as home prices return to and surpass pre-crash levels. With the cost of living set to rise higher in 2018, one thing Americans can do to soften the blow is adopt some proven ways to save money before the end of the year. Otherwise, it will be difficult to escape this rising prices tide.
Although the living-cost-increase trend is general, there are a handful of cities that specifically stand out due to the level and rapidity of their increases. Two recent studies, conducted by GOBankingRates, analyzed over 100 major U.S. cities to find out where living cost increases are making the biggest impact. The first study identified cities with the biggest cost of living increases over the course of 2017. The second study determined which cities are expected to have the biggest increases in 2018.
Three principal metrics were used to highlight these cities: The change in non-housing living costs in the last year; the change in the consumer price index over the last year and the average year-over-year change for the last three years; and forecasted changes in rent and home values for the coming year.
Cities Where the Cost of Living Is Surging
Drawing on the combined results of the two studies, six cities shared similar patterns of increases across all three measures:
- Atlanta
- Denver
- Eugene, Ore.
- Nashville, Tenn.
- Portland, Ore.
- Seattle
The first metric is the significant increase in non-housing living costs in the last year. These costs include things like groceries, utilities, transportation and healthcare, among others. Three cities, in particular, saw some of the biggest increases in non-housing costs: Eugene, Ore., with a 22 percent increase; St. Paul, Minn., with a 15.7 percent increase and Nashville, Tenn., with a 15.4 percent increase. Atlanta recorded the sixth-largest increase and Seattle the seventh.
For the second metric — the increase in the consumer price index — Portland saw the biggest jump from 2016 to 2017 at 4.42 percent. On top of that, it also averaged an increase of 2.49 percent a year from 2014 to 2017, second only to San Francisco’s average increase. Denver and Seattle also experienced greater than 2 percent growth, putting the cities among the top five for rising consumer prices.
Since housing costs are the primary component of the overall cost of living, the home value and price forecast is the third metric GOBankingRates used. Seattle has the highest forecasted rent increase over the next year, followed by Portland and Atlanta. Seattle and Atlanta also rank among the top five cities with the highest forecasted home value increase.
The Positive Side of Cost of Living Increases
While rising living costs are bad because basic necessities can take a bigger chunk out of people's budgets, they often reflect positive developments at the city level.
There are two common correlations with increasing living costs: employment growth and income growth. Four cities stand out for their growth from 2010 to 2017: Employment in Nashville grew by 28 percent, Denver by 22 percent and Seattle and Atlanta by 21 percent.
Strong income growth also correlates with periodic cost of living increases. In Portland, the median household income grew 20 percent from 2010 to 2016 for an increase of nearly $10,000. Meanwhile, Denver’s median income grew 24 percent, jumping from $48,831 to $58,423. And while Denver saw a higher percentage increase, Seattle saw a larger increase in dollar amounts, with its median income rising close to $14,000 from 2010 to 2016.
The Negative Side of Cost of Living Increases
When living costs rise, housing becomes less affordable. Despite the impressive increase in incomes over the years, housing costs have still managed to rise faster. Looking closely at income versus rental prices historically, rents have consistently eaten up a larger portion of monthly income year over year.
In Seattle, based on the 2010 household income of $60,665, median rent took up about 36.8 percent of monthly earnings. By November 2016, household income had risen to $74,458, but with a median rent of $2,643, housing now consumed 42.6 percent of a month’s pay. The same pattern holds for Denver, where rent in 2016 accounted for nearly 45 percent of monthly income versus 36.5 percent in 2010.
Cost of Living is Surging in These Major Cities and What it Could Mean for 2018 curated from Forbes - Real Estate
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