With the economy stepping into a slow and yet hopeful recovery, many apartment renters are wondering whether to expect rents to rise or fall over the next few years. Though the future of the economy is always veiled behind a fog of complex financial interactions, experts tend to agree that the rental market may be on its way towards higher prices and less availability. How much rent can be expected to increase depends on a number of different factors, though the demand in the house buying market most drastically affects the rental market.
At what point is it better, long-term financially speaking, to rent or invest one’s savings in something somewhat more permanent? The answer depends largely on a renter’s projected income, the market, and a variety of other factors. The New York Times has developed a rent vs. buy calculator which, given extensive variable inputs, helps determine a more personalized answer to the ‘rent-vs-buy’ question. Generally speaking, in the short term at least, it is often more financially feasible to rent – particularly for those of us who have just weathered a long recession and don’t have down-payment type savings in our bank accounts or credit scores that still-cautious lenders might favor.
Though the recession is officially over, the relief of such news is yet to be felt in the bank accounts of many people across the nation. Unemployment is still high, credit is still hard to come by and many homes are still about to go into foreclosure. Economists warn that many areas, especially regions with highly inflated prices that experienced sudden drops in value, should expect the housing market to get worse before it gets better. As more families lose their homes through foreclosures or short sales, the apartment market will see a sharp rise in demand. A great resource to track demand in different markets is the ‘Housing Bubble Blog‘ – a good one to add to your RSS reader if this is an issue you are following.
The economy is a complicated creature, one that is difficult for even the experts to predict, but at its heart, it is usually driven by a simple concept: when demand goes up, prices go up; when supply goes up, prices go down. Experts predict that two things are due to happen with the rental market in the near future: an increase in demand as more people lose their homes, and a decrease in supply, since new apartment units are not being built quickly enough to fill the increase in demand. Put these two things together, and we can expect as we have been speculating for quite a while now – an economic climate of drastically rising rates in rent.
Of course, the rise and fall of rental prices varies considerably from state to state and city to city, but nationwide, experts are predicting a significant jump in rental rates. Over the past ten years, rent has increased on average about 1% per year. In 2011 and 2012, rents could rise at a rate closer to 3% or 4% each year. Markets with a sharp increase in demand for rental units could see higher increases, pushing a 5% increase each of these years.
Nationally, we seem to be trending towards higher rental prices. High unemployment will drive the demand for rent up because people who are unemployed or underemployed are not able to save up for a large purchase such as a house. Areas with high rates of foreclosures will also see an increase in demand for apartments. Though many areas across the nation are experiencing both of these things, there are other places that have seen an increases in the construction of new homes and sometimes decreases in the cost of property. In these regions, rental prices may fall as more people find it possible to afford to buy a home, many of which are selling at low prices.
Is buying a home still very much a part of the American dream? So far, the answer seems like it is – even if at times it seems an impossible goal to attain. In the meantime, the folks who write this blog are renters and quite happily so – and we will do our best to continue to find ways to make renting awesome!
Have thoughts? A blog that follows rental markets? Experience to share? We’d love to hear from you – here or on our Facebook page!