More Americans are struggling to make rent.

The number of renters dedicating at least half of their income toward housing hit a record high of 11 million people in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University.

A total of 21.3 million are spending 30% or more of their paycheck to cover the rent — also a record high.

Personal finance experts generally suggest budgeting around 30% of monthly income to cover housing costs.

But that’s getting harder to do with rent prices rising faster than wages

half pay check rent

Household budgets are taking a hit

Losing such a large portion of a paycheck to cover housing means cutting back in other areas.

“When you have to dedicate such a high proportion of your income to rent every month, it forces you to make difficult decisions,” said Dan McCue, a senior research associate at the Joint Center.

Not only does that mean less spending on essentials like food, clothing and health care, it also makes it tougher to achieve long-term financial security by saving for an emergency fund, a down payment or retirement.

Related: Men are making more money off their homes than women

Middle-class renters in expensive cities are struggling

In the 10 cities with the highest housing costs, renters with middle-class incomes are having a particularly hard time making ends meet. Nearly 75% of renters earning $30,000-$44,999 and 50% of those making $45,000-$75,000 living in these hot markets are considered “cost-burdened” — meaning they spend at least 30% of their income on rent.

Related: These cities have the highest rents in the country

It’s not just young people who are renting

“The shift toward renting has been widespread among age groups, incomes and different types of households,” said McCue.

Last year saw the biggest surge in new renters in history, according to the report, bringing the number of people living in rental units to around 110 million people — or about 36% of households.

Middle-aged renters made up a lot of the new demand, with 40% of renters aged 30-49.

And renters are sitting on both ends of the pay scale: almost half of new renters in 2015 earned less than $25,000, while top-income households have been the fastest-growing segment of new renters for the past three years.

Related: America’s upper middle class is thriving

 

Developers are focusing on building luxury apartments that tend to provide a higher return on investment. That’s dragging overall rents higher and leaving a dearth of affordable rentals.

The median rent on a new apartment was $1,381 in 2015, according to the report, which means a renter would have to make at least $55,000 a year to be able to afford the rent.

And with the typical renter making about $34,000 a year, that means an affordable rental would be about $850.

Homeownership is becoming more affordable

While renters are paying more, affordability is improving for those who own their homes. The number of cost-burdened homeowners declined in 2014 for the fourth consecutive year, according to the report, thanks to low mortgage rates.

EM Bank Lending Conditions Survey

In order to assess bank lending conditions in emerging markets, the IIF conducts a quarterly survey among banks based in five emerging market regions: Emerging Asia, Latin America, Emerging Europe, Middle East & North Africa and Sub-Saharan Africa. The Survey is addressed to Senior Loan Officers, Chief Credit Officers, Credit Risk Officers or other senior officers in comparable positions. The survey, which began in December 2009, is carried out using aquestionnaire containing fourteen multiple-choice questions that address five different topics on bank lending: 1) Credit standards for business, consumer and real estate loans; 2) Demand for business, consumer and real estate loans; 3) Domestic and international funding conditions; 4) Demand and supply conditions for trade finance; and 5) The evolution of nonperforming loans. The survey responses for each question is converted into a diffusion index for all regions. The survey results are published in January, April, July and October and are used extensively by the financial industry. For any questions about the survey, please contact Arpitha Bykere.

The April 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices

The April 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months.1 This summary discusses the responses from 70 domestic banks and 22 U.S. branches and agencies of foreign banks.2

Regarding loans to businesses, the April survey results indicated that, on balance, banks tightened their standards on commercial and industrial (C&I) and commercial real estate (CRE) loans over the first quarter of 2016.3 The survey results indicated that demand for C&I loans had weakened and that demand for CRE loans had strengthened during the first quarter on net.

The first of two sets of special questions asked banks about lending to firms in the oil and natural gas drilling or extraction sector. The majority of domestic banks reported that loans to firms in this sector account for less than 5 percent of their outstanding C&I loans. In contrast, the majority of foreign banks reported that loans to firms in this sector account for more than 5 percent of their outstanding C&I loans. On balance, both domestic and foreign banks expect delinquency and charge-off rates on such loans to deteriorate over 2016 and noted that they were undertaking several actions to mitigate the risk of loan losses. In addition, on balance, banks indicated that the credit quality of loans made to businesses and households located in regions of the United States that are dependent on the energy sector had deteriorated somewhat.

The second set of special questions asked banks about their CRE lending policies and securitization activity. On balance, banks reported leaving most CRE loan terms unchanged over the past year. In response to conditions in the commercial mortgage-backed securities (CMBS) market over the past six months, on balance, banks reported increasing the volume of origination of CRE loans while decreasing the volume of CRE loan securitization. When asked about the anticipated large amount of CRE loans originated in 2006 and currently held in CMBS that will need to be refinanced over the next six months, some banks noted they expect standards for these refinancings to be somewhat tighter than the standards they expect to apply to other CRE loans.

Regarding loans to households, banks reported having eased lending standards on most types of residential real estate (RRE) mortgage loans, while demand for these loans strengthened over the first quarter. Modest net fractions of banks reported easing lending standards on credit cards and other consumer loans, whereas lending standards for auto loans remained basically unchanged. Over the first quarter, banks reported stronger demand across all consumer loan categories.

Lending to Businesses
(Table 1, questions 1-23; Table 2, questions 1-18)

Questions on commercial and industrial lending. On balance, a moderate net fraction of banks reported a tightening of lending standards for C&I loans to large and middle-market firms over the past three months.4 Meanwhile, only a modest net fraction of banks reported tightening lending standards for C&I loans to small firms. Banks reported that they tightened some C&I loan terms for large and middle-market firms: A moderate net fraction of banks reported that they had increased premiums charged on riskier loans, a modest net fraction of banks reported that loan covenants had tightened, and most other terms to such firms remained basically unchanged on net. Banks reported mixed responses regarding changes in loan terms for small firms. A majority of the domestic respondents that tightened either standards or terms on C&I loans over the past three months cited a less favorable or more uncertain economic outlook as well as a worsening of industry-specific problems affecting borrowers as important reasons. Meanwhile, a significant net fraction of foreign respondents reported a tightening of lending standards for C&I loans.

Regarding the demand for C&I loans, on balance, a modest net fraction of large banks reported that demand from large and middle-market firms was weaker during the first quarter, whereas demand remained basically unchanged for loans to small firms. Among the banks that reported weaker loan demand, customers’ decreased investment in plant or equipment was the most commonly cited reason, though customers’ reduced needs to finance merger and acquisition activity, accounts receivable, and inventories were also cited by the majority of respondents. Furthermore, a moderate net fraction of foreign bank respondents reported that demand for C&I loans weakened over the first quarter of 2016.

Special questions on commercial and industrial lending. The April survey asked a set of special questions about lending to firms in the oil and natural gas drilling or extraction sector. Of banks that made loans to such firms, the majority of domestic banks indicated that such lending accounts for less than 5 percent of their outstanding C&I loans, whereas the majority of foreign banks reported that loans to firms in this sector account for more than 5 percent of their outstanding C&I loans. The majority of both domestic and foreign banks reported that they expect delinquency and charge-off rates on loans to firms in the oil and natural gas drilling or extraction sector to deteriorate somewhat over the remainder of 2016. At the same time, the majority of both domestic and foreign banks reported taking a variety of actions to mitigate loan losses over the past year, including tightening lending policies on new loans or lines of credit made to firms in this sector, restructuring outstanding loans, requiring additional collateral, and setting aside additional reserves for a potential increase in loan losses. A significant percentage of banks also reported enforcing material adverse change clauses or other covenants to limit draws on existing credit lines to firms in this sector, tightening lending policies on new loans or lines of credit to firms in other sectors, and hedging the risks arising from declines in energy prices through derivatives contracts.

On balance, banks indicated a spillover from the energy sector onto credit quality of loans made to businesses and households located in energy-sector-dependent regions. In particular, a significant net fraction of banks reported that credit quality deteriorated for both auto loans and non-energy-sector C&I loans somewhat over the past year. Furthermore, moderate fractions of banks indicated that CRE loans, consumer credit card loans, and consumer loans other than credit card and auto loans made to businesses and households in these regions also deteriorated somewhat over the past year.

Questions on commercial real estate lending. On net, survey respondents indicated that their lending standards for CRE loans of all types tightened during the first quarter.5 A significant net fraction of banks reported tightening standards for construction and land development loans and loans secured by multifamily residential properties, whereas a moderate net fraction of banks reported tightening standards for loans secured by nonfarm nonresidential properties.

During the first quarter of 2016, on balance, banks indicated that they had experienced stronger demand for all three types of CRE loans. Moderate net fractions of banks reported stronger demand for construction and land development loans and loans secured by nonfarm nonresidential properties, and a modest net fraction of banks reported stronger demand for loans secured by multifamily residential properties. Meanwhile, nearly all foreign banks reported leaving CRE lending standards basically unchanged, while a significant net fraction of foreign banks reported experiencing weaker demand for such loans.

Special questions on commercial real estate lending. The April survey included a set of special questions regarding CRE lending activities. First, banks were asked about changes over the past year in their lending policies for CRE loans. In particular, moderate net fractions of banks reported increasing maximum loan size and tightening loan-to-value ratios, while a modest net fraction reported tightening debt-service coverage ratios. Survey respondents indicated that other loan terms remained basically unchanged, on net, over the past year.

Next, banks were asked about their responses to conditions in the CMBS markets over the past six months. A moderate net fraction of banks reported moderately increasing the volume of origination of CRE loans, while a significant fraction reported moderately decreasing the volume of CRE loan securitization. On balance, banks reported that demand for loans or lines of credit from nonbank financial institutions, used to fund their CRE loan pipelines prior to securitization, remained basically unchanged over the past six months, while a moderate fraction of banks indicated tightening standards applied to such loans or lines of credit during this period. When asked about the anticipated large amount of CRE loans originated in 2006 and currently held in CMBS that will need to be refinanced over the next six months, a moderate net fraction of banks noted they expect standards for these refinancings to be somewhat tighter than standards they expect to apply to other CRE loans.

Lending to Households
(Table 1, questions 24-37)

Questions on residential real estate lending. During the first quarter, a moderate net fraction of banks reported having eased standards on GSE-eligible loans, while a modest net fraction of banks reported having eased standards on QM and non-QM jumbo residential mortgage loans as well as on QM non-jumbo non-GSE-eligible and non-QM non-jumbo residential mortgage loans.6 Meanwhile, banks left lending standards basically unchanged for all other categories of RRE loans on net.

Over the first quarter of 2016, banks reported stronger demand for most categories of RRE mortgage loans. In particular, a significant net fraction of banks reported stronger demand for GSE-eligible and QM jumbo residential mortgages. At the same time, a moderate net fraction of banks reported stronger demand for government, QM non-jumbo non-GSE-eligible, and non-QM jumbo residential mortgages, and a modest fraction of banks reported stronger demand for non-QM non-jumbo residential mortgages. Credit standards were reportedly little changed for approving applications for revolving home equity lines of credit, and a moderate fraction of banks reported that demand for revolving home equity lines of credit had strengthened on net.

Questions on consumer lending. A moderate net fraction of banks indicated that they were more willing to make consumer installment loans during the first quarter compared with three months prior. Over the first quarter, a modest net fraction of banks reported easing lending standards on credit cards and other consumer loans, whereas lending standards for auto loans remained basically unchanged. On balance, banks reported that terms across all categories of consumer loans remained basically unchanged over the first quarter. Banks generally reported that demand for consumer loans had strengthened in the first quarter: Moderate net fractions of banks reported stronger demand for auto loans and consumer loans other than credit card and auto loans, whereas a modest net fraction reported that demand for credit card loans strengthened during the first quarter.

This document was prepared by Maya Shaton, with the assistance of William Hayes and Blake Taylor, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.

Regulations, Prices and Competition Shape Bank Lending in 2016

The financial services sector is positioned for some potentially large transformations this year that will affect the commercial real estate industry. Regulatory matters, increased competition and changing demographics are among the top issues that will alter the state of the market. The sector also will be affected by interest-rate policy, volatility in the global economy and the outcome of the U.S. presidential election.

The impact of this year’s changes will be influenced by government and nongovernment entities, factors outside of the banking business, and internal industry challenges. To ensure institutions are properly prepared to navigate these transformations, commercial real estate professionals should be aware of some key themes that will shape commercial real estate this year and beyond.

Regulatory issues

Regulation continues to be a top concern among lenders and could fundamentally reshape commercial real estate. This past December, federal banking agencies issued a Statement on Prudent Risk Management for Commercial Real Estate Lending, which warned about loosening of commercial real estate loan-underwriting standards. The agencies added that supervisors will continue to pay special attention to commercial real estate lending in exams in 2016.

Additionally, new regulations on capital requirements for high-volatility commercial real estate (HVCRE), the Dodd-Frank Wall Street Reform and Consumer Protection Act credit-risk retention rule, and impairment accounting will be implemented over the course of the year. Overall, the 2016 regulatory environment will make commercial lending activities increasingly challenging as additional rules are approved by regulatory agencies and implemented throughout the industry.

This year, industry leaders hope to seek additional clarity from the regulators regarding HVCRE classifications, which went into effect in January 2015. Although FAQ guidance was released in April, many questions remain unanswered, and banks and developers are still confused by many aspects of the rule.

The Dodd-Frank credit-risk retention rule for commercial securities, which goes into effect in December, is another area of confusion. Although the rule primarily affects the commercial mortgage-backed securities (CMBS) market, it has the potential to have an impact on credit availability across all sectors of commercial real estate. Various trade associations in Washington continue to press for rule changes and guidance, in hopes of streamlining the implementation and market’s digestion of the rule.

Changes to impairment accounting under the Financial Accounting Standards Board standards, which are set to be released in the first quarter of this year, will require significant operational adjustments throughout the banking industry. Regulators are working on the final credit-loss model, which will likely be implemented in 2018, and may have significant effects on real estate loss-reserve accounting that would affect credit availability.

As lending rules shift and proliferate, the professional examinations associated with financial regulations continue to be extensive, time-consuming and cumbersome processes for banks. Current inconsistencies in analysis and interpretation will only intensify through the year, as more rules are implemented, potentially causing further headaches in the closely monitored examination process.

Interest rate uncertainty

In December, the Federal Reserve approved the first increase in short-term interest rates in almost a decade. Although the increase was widely anticipated, there is some concern in the industry about how the market will absorb rate hikes.

As baby boomers retire, having well-trained young professionals already
in place will be vital to the stability of the financial-services industry.

Eric Rosengren, president of the Federal Reserve Bank of Boston, spoke to these fears in a speech late last year, in which he said he was worried about the rapid rise in commercial real estate prices — echoing similar comments made by John Williams, president of the San Francisco Fed.

With low rates, there are worries among bankers that investors are seeking higher returns without properly analyzing the risk and preparing for the effects of rate hikes. Consequently, lenders are apprehensive, particularly with regard to runoff risk, credit spreads and borrowing costs.

Competitive environment

The interest-rate risk is only amplified by the increased competition among lenders. Borrowers are finding more sources of alternative lending, such as credit unions, marketplace lenders, insurance companies, government agencies and real estate investment trusts, which has been accompanied by a trend of eased underwriting standards for commercial real estate loans.

This competition also extends to the CMBS market. Currently, at least 40 CMBS lenders  are active in the industry, according to market experts. With so many players, the smaller shops issue overly competitive quotes in hopes of increasing their market share, forcing the larger lenders to become more competitive in order to keep the business they already have. This market environment has led to thinning profit margins and could result in poor deal execution. Given these market conditions, there are legitimate questions about the market’s stability and excess credit supply.

As credit standards have eased, some market experts have opined that the commercial real estate  market is becoming frothy, and that prices may have reached their peak. When coupled with declining capitalization rates, which are back to prerecession levels, and predictions of continued rising interest rates, lenders believe these market dynamics may lead to another commercial real estate bubble. The increasing rates will compete against the rental yield on commercial real estate properties, which could negatively  impact prices and result in disastrous declines in property values.

Urban-rural divide

Commercial real estate is affected by a distinct dichotomy between urban and rural areas. Commercial real estate lending has grown sharply in metropolitan regions of the U.S., at same time that lending in rural areas remains steady, or sluggish. The divide seems to be a direct result of the lack of job growth in rural areas, compared to urban areas.

The U.S. population is moving to the areas of employment that are largely concentrated in metropolitan cities, such as San Francisco, Houston and Charlotte, where there has been an uptick in job growth in recent years. This segregation will likely have a direct  impact on economic growth, and some are concerned about the long-term effects of this disconnect.

Property values in metropolitan U.S. cities also have benefited from the influx of foreign capital generated by overseas investors’ belief that their assets are better protected in the U.S. than in their home countries. Although initially this trend was most prevalent in gateway cities like New York and  Miami, other cities have also started to see an increase in foreign investment.

In New York City, Chinese investors have become the biggest private buyers of real estate. With the Chinese stock market declining sharply this past year, and Chinese authorities loosening some restrictions on overseas investments, China remains an important source of capital in the U.S. commercial market.

Demographics drivers

Commercial real estate will be affected by changing demographics in the workforce as baby boomers retire and millennials gradually begin to replace them. The decisions boomers make about where to retire, as well as the uncertainty around many millennials’ housing and work choices, will be significant in the industry.

Demographics also raise important questions for lenders, who are finding it harder to recruit and retain young staff members. As baby boomers retire, having well-trained young professionals already in place will be vital to the stability of the financial services industry.

Those effects are particularly evident in the appraisal industry. Appraisal companies are attempting to combat a projected shortfall of qualified appraisers as the industry’s workforce rapidly ages — posing a major near-term challenge for commercial real estate lenders, especially in rural areas with fewer appraisers.

Overall, 2016 will be pivotal for commercial real estate. Lenders should keep a watchful eye on the issues most likely to affect the industry, in order to properly prepare for a successful year.

What real estate industry experts say will be the top trends in 2016

Emerging Trends in Real Estate® 2016 reflects the views of more than 1,800 industry experts, including investors, fund managers, developers, property companies, lenders, brokers, advisers, and consultants.  Read the 2016 report for the detailed findings.

1.       18-hour cities 2.0

Last year Emerging Trends identified the rise of the 18-hour city.  This year, the real estate industry is expressing growing confidence in the potential for investment in these markets.  Potential workers are drawn to these markets due to the availability of services and amenities similar to larger metro areas, but at an affordable cost.  Employers are drawn to the quality of the workforce and the lower cost of doing business.  The bottom line is that these 18-hour cities are being considered viable investment alternatives to the big six.

2.      Next Stop:  The suburbs…What is a suburb?

The suburbs are a long way from being dead, but the suburbs that are thriving, are not the suburbs of the past.  Investors still like urban investments, but urban areas are a finite universe.  The real estate market has found a way to replicate the attractive components of an urban environment in select suburban locations.  A growing amount of evidence supports the idea that millennials will eventually make their way to outer neighborhoods and even select suburban locations.  While they are leaving the urban center, they are still looking for walkable locations with good public transportation and all of the amenities to which they have become accustomed.

3.      Offices:  Barometer of change

The office property sector offers a direct insight into how technology disruption, generational transfer, workflow reorganization can impact real estate.  Space per worker has been steadily declining, but it hasn’t been just a drive to cut costs.  New space design must be attractive to the workers who companies hope to attract.  This has resulted in new layouts that cater to the demands of the millennial worker, who are quickly becoming the largest percentage of the workforce.  But this new space isn’t just appealing to the workers, it also addresses the way work is being done.  Technology is allowing workers to be much more flexible in what they can do and where they can do it.  In addition, we are seeing workers who prefer to go from project to project rather than commit to a single employer and firms who prefer to share space with other companies.  In the middle of all this change, we are witnessing the beginning of the exit of the baby boomers from the workforce, leaving generation X in charge of the growing millennial workforce.

4.      A housing option for everyone

The market has been waiting for the single family housing market to return to an ownership percentage near the 66% long-term historical average.  Changing demographics and household preferences are moving in a direction away from traditional homeownership.  This is creating opportunities for a wider set of housing options.    The single family market continues to improve in a number of markets, but first time buyers have been slower to return to the market.  Single family rental continues to develop as a preference for a number of households, who like the lower cost of entry and flexibility.  Going forward, the housing market will see demand from aging baby boomers who will be looking for homes where they can age in place.  While younger millennials will look for affordable options in higher cost urban areas.

5.      Parking for change

For years, the search has been how to provide enough parking.  That trend is changing to how do I profitably repurpose the parking I have?   Tenants who once required a set number of parking spaces per employee, are reducing their demand as workers expand their use of alternative commuting methods.  Mass transit, bicycles, ride sharing, and walking are becoming more popular ways to get to and from work.  Another issue is how to provide parking to tenants who have a large number of workers with alternative work arrangements, but who may be in the office at the same time.  Building owners will need to find alternative ways to generate revenue from resources currently devoted to parking.

6.      Infrastructure:  Network it!  Brand it!

Infrastructure solutions in the U.S. have traditionally been allocated to large government sponsored projects.  With the number of infrastructure needs in markets across the country becoming more numerous and varied the opportunity exists for private investment to become more involved in providing solutions.  These solutions are good for the community, and if designed appropriately can be profitable for investors.

7.       Food is getting bigger and closer

What is the solution when you have a generation that clearly expresses a desire to eat fresh more nutritious foods but chooses to live in large urban areas?  One way to meet this need is with urban farming.  Not only does urban farming utilize rooftops, it is also bringing new life to obsolete urban industrial properties.

8.      Consolidation breeds specialization

The real estate market continues to experience consolidation as market participants look for greater market share and operating efficiency through acquisition.  The market however, has realized that there is still room for those who specialize.  This specialization reminds us that real estate is still a hands on investment that benefits from local expertise.   Specialization allows developers, owners, service providers, and operators to provide that expertise to a growing variety of real estate investments.

9.      We raised the capital, now what do we do with it?

Domestic and global capital continues to flow into the U.S. real estate market.  Global uncertainty and financial market volatility continue to enhance the attractiveness of hard assets in relatively stable markets.  The big six markets that have been the number one choice of many investors have seen prices reach a level where investors are now seriously considering expanding to a wider market set and alternative investment choices.

10.   Return of the human touch

Technology, big data, and increased market transparency has led to the perception that real estate investing can be done using an algorithm.  While these tools have made it greatly enhanced the ability of investors to target specific investments and increase confidence in underwriting assumptions, it still takes the human touch and experience to make it work.