Good news for landlords, bad news for renters as U.S. Census Department and Rent.com agree that double digit rent hikes are on the way across America. Traditional news outlets point to this as a sign of economic recovery, we point to it as a sign of the opposite.
Vacancy rates have remained around 10% over the last three years with predictions of 5% vacancy by next year, and with the continuing housing crisis, existing landlords (especially multifamily) are in a good spot- consumers lack confidence in housing and financing is tough, making renting more common. This does not spell economic recovery, it simply spells landlord luck.
The stigma around renting is fading across the board and Realtors who used to be apartment locators are returning to their old stomping grounds despite locator fees having dropped substantially over the years (and most multifamily not paying on send only).
Rent spikes
For the last decade, national rent increases have averaged 1% each year and in hot spots, we’ve seen 5% increases quite regularly, making a projected national average of 10% straining on the rental population- here in Austin, we’re seeing some 17% rises and in Boston 30%, leaving some renters in a non-qualifying status, forcing unexpected moves.
In the last six years, 1.2 million American adults have moved back in with their parents. We expect to see that number rise as double digit rent increases set in. We anticipate local tenant councils will be very busy over the next few years as renters are caught off guard by such spikes.
Property owners and multifamily managers will take advantage of this situation to improve cash flow as the housing crisis continues and renters who are scared of buying will have their fears reinforced as they rarely see the difference between the rental sector and the housing sector (they’re all scary now).
Economic recovery? Absolutely not- rapidly rising rental rates point out a weak spot in the market, not strength. Moms and dads of America- you better get the guest room cleaned up, the kiddos are moving back in. It won’t last long though, as this is the unfortunate first step and first bubble on the way to recovery.
Adam Burdick
March 15, 2011 at 1:22 pm
Actually for the most part the double digit growth are in areas where rents are just correcting themselves. Let’s not forget that for the past 2 years rents across the board have been rapidly declining. Some places in sub-markets of Dallas and cities like Slat Lake City have seen rental prices drop by anywhere between 35-50% since 2008. With that said, current rental prices in most US cities have yet to return to where they were in January of 2009.
Granted the rental industry is in a very good position as 1. home ownership is harder to get and 2. New apartment construction is at a record low has created a “perfect storm” as Supply is limited and demand is growing. However, I would still argue that rent increases are a sign of economic recovery. As the first places hit hard during an economic hardship are one bedroom apartments/townhouses/condos as people start to either move home, or get a roommate (or even stay in bad relationships), in an effort to control costs. Now that there are more jobs and work hours are increasing people are feeling more and more comfortable about getting their own place.
Krista Lombardi
March 15, 2011 at 9:57 pm
Wow! San Diego saw 28% cash sales in January and 30% cash in February too, hope that too many people don’t wait too long…
Dave Kinkade
March 16, 2011 at 8:28 pm
Renters have been absolutely spoiled the last five years as more and more landlords were forced to compete against one another and slash their asking rental prices. This isn’t some sort of bubble – it is merely a correction to help restore balance to a once-deeply skewed renter’s market. Units in Tampa that were renting for $900 a month two years ago are easily getting $1,100 these days.
Jennifer
September 19, 2011 at 2:32 pm
You guys must all be landlords! This article is right on. Rents are increasing and will continue to increase as long as people are afraid of home ownership. It is a great time to be a landlord! There are tons of cheap properties on the market just waiting for lucky investors to scoop them up. As an added bonus, every time a landlord purchases a condo, it makes it harder for an aspiring homeowner to get financing towards purchasing another condo in the same complex- bringing prices down even further. It is a dangerous cycle which could lock many people out of home ownership.
Last year, I was renting a miserable little apartment for 750 dollars a month. My building was infested with bedbugs and had serious mold producing plumbing problems. A faulty HVAC system resulted in doubled electric bills. I moved out- that rent skyrocketed to 843 dollars (for a pretty nasty, cinder block apartment with cheap appliances). Good luck to the guy who now lives there. I now own my own home and am paying 572 a month in combined mortgage/insurance/taxes.
Now is a fantastic time to buy a house. Taxes may rise, but your fixed mortgage is forever (or almost literally so). The trick is to find a little house that you can easily afford and not to purchase a home that is at the top of your price point. There are tons of these little Cape Cod style houses for sale. Because they tend to run around 1000 square feet and have usually a single bathroom, they are considered to be obsolete by many prospective home buyers and so are being sold dirt cheap. For a single person who plans on staying in the area and would otherwise be renting they are fantastic. They have more than enough space and tons of potential. Not only can you ditch your apartment, but you can ditch any studio, storage or community garden space that you might now use. They are also easily rented out…. if you decide to convert to the dark-side.