Hat tip to Ross and Local Boy, who sent this in from CNN/Money.com:
NEW YORK (CNNMoney) — Renters beware: Double-digit rent hikes may be coming soon.
Already, rental vacancy rates have dipped below the 10% mark, where they had been lodged for most of the past three years.
“The demand for rental housing has already started to increase,” said Peggy Alford, president of Rent.com. “Young people are starting to get rid of their roommates and move out of their parent’s basements.”
By 2012, she predicts the vacancy rate will hover at a mere 5%. And with fewer units on the market, prices will explode.
Rent hikes have averaged less than 1% a year over the past decade, according to Commerce Department statistics, adjusted for inflation. Now, Alford expects rents to spike 7% or so in each of the next two years — to a national average that will top $800 per month.
In the hottest rental markets, the increases will likely top the 10% mark annually for the next couple of years.
In San Diego, Alford anticipates rents will rise more than 31% by 2015. In Seattle rents will climb 29% over that period; and in Boston, they may jump between 25% and 30%.
This is a sharp change from the recession, when many Americans couldn’t afford to live on their own. More than 1.2 million young adults moved back in with their parents from 2005 to 2010, said Lesley Deutch of John Burns Real Estate Consulting. Many others doubled up together.
As a result, landlords had to reduce prices and offer big incentives to snag renters.
Now that the recession is easing, many of these young people are ready to find new digs, mostly as renters, not owners. Plus, the foreclosure crisis continues unabated, and the millions losing their homes are looking for new places to live.
Apartment developers many not be able to keep up with this heightened demand, which will force prices upwards, according to Chris Macke, a real estate analyst with CoStar, which tracks multi-family housing trends.
“There will be an envelope of two or three years,” said Macke, “when the rise in demand for rentals will exceed the industry’s ability to meet it.”
Plus, Alford added, “there’s been a shift in the American Dream. We’re learning from our surveys that a huge proportion of people are choosing to rent.”
They’ve experienced the downsides of homeownership — or seen friends and family suffer — and don’t want to take the risks or pay the higher costs of homeownership.
I was reluctant to include this, because it has the president of rent.com talking up the rental market, just like realtytrac talking up the foreclosure market.
Take it with a grain of salt.
I don’t believe landlords have the pricing power to raise rents like this story indicates. Incomes are not expanding, and any additional income is being mopped up by higher food, medical, and energy cost. If anything, rents are likely to remain stagnant (+1%/-1%) for a number of years. The FEDs efforts of inflating our economy are not impacting housing or most importantly, incomes … YET.
If the Pres. of Rent.com were “Talking it up” as if rents were going to drop, I can see that point. However, if the demand that she says she is seeing does actually cause rents to “Explode” (ie–maybe a good time to buy, NOT RENT) wouldn’t that actually be hurting her cause by taking renters out of the market? Just a thought.
Local Boy – Or….trying to convince people that now is a good time to become a landlord because your rental income will rise. they need landlords to post rentals on their site more than they need renters.
Landlords pay the bills for rent.com, not tenants.
“Young people are starting to get rid of their roommates and move out of their parent’s basements.”
Really!? The kids are kicking their parents out of the house?!
Hahahaaha, thanks for posting that story Jim, that’s the best laugh I had all day.
Look at the chart, funny how the projected rents are supposed to surpass the real estate bubble years. And the slope of projected rents are supposed to be steeper than any other period. And all this is supposed to happen from the recent drop in rents shown on the chart.
So what. My rents go up 31% but my costs go up 40%.
1. Make crazy nonsensical chart
2. ?
3. Profit
Great article by the Seattle Bubble Blog that shines a different light on this topic.
http://seattlebubble.com/blog/2011/03/16/are-seattle-area-rents-poised-to-shoot-up-again/
Brad
Reminds me of a quote I know:
Besides, we already covered this 5 years ago.
http://www.socalbubble.com/2006/02/rents-to-follow-for-sale-housing.html
They were wrong then, and in the absence of a stronger recovery that puts people out of their parents’ basements, rents don’t seem to be going anywhere… unless you offer the same tax benefits to renting as you do to owning.
Chuck
Though rising rents indicate rising prices if interest rates remain stable.
CF–Still not a strong enough argument for me to discredit her contribution to the article. Rising rents will not produce more rental inventory for her site–maybe a few more SFR landlords, but not enough to discredit her input. Building more apartments to offset demand, yes, but we know that can’t happen in San Diego.
I hate graphs like that. It basically says, “Well, rents have been falling or steady the past few years, but we project that they are going to increase because…well…just because!” Blarg.
We manage and lease lots of quality properties in North County Coastal, La Costa, Encinitas, Carlsbad, SEH etc.. and demand has been heavy since the beginning of 2011. More demand, less supply and rents are increasing some, but they will never go up drastically, they move slower, but after a level period the past few years, they are moving up a bit now. Lot’s of families coming out of short sales and foreclosures, still good income, damaged credit, but many are still good rental risks. Also the fact that new construction has been at a standstill for several years now may increase that supply & demand equation over the next several years. Some buyers are putting buying on hold, why buy? when things may go down more, getting a loan is difficult and mobility is restricted for job relocation when you can’t sell your home, I’m seeing a attitude shift towards buying, their has been more demand for rentals just recently, but rents won’t ever inflate like the bubble did, rents move up and sometimes down, in increments and at a slower pace.
Was looking for a compelling “because” clause in there, but only found that “the recession is easing”. I thought it ended in June 2009, haha?
Love the chart that has the skyrocketing rent line, out of line with the yearly moving average.
I think rents could skyrocket, if we have a ton of inflation soon. 1.4% CPI increase in the shortest month of the year? It may be coming.