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Get ready for a major rent hike

Rent will likely continue to rise for three or four years -- by about 16%, according to an expert's estimate.

By MSN Money Partner Oct 25, 2013 12:54PM

This post comes from Marilyn Lewis at partner site Money Talks News.


Money Talks News on MSN MoneyThe price of renting is rising and competition is growing for apartments, condos and houses.


Rents rose 7.6% nationally in the last five years, The Wall Street Journal says. In some cities they're up 10%.


House for rent in the middle of winter © David Joel, PhotographerApartment rents (that's the average rent, excluding perks and freebies) are expected to rise about 16% — from $1,049 in 2012 to roughly $1,215 by the end of 2017, Reis Inc. analyst Michael Steinberg tells Money Talks News.


Voracious demand

Blame it on the recovery, which is in itself is a good thing, of course. It means, however, that more people are in the market for rentals. At the same time, builders are struggling to bring new apartments online fast enough to meet the increased demand.


"The country has been on a decades-long drought of large-apartment-building construction" because, until recent years, homeownership was growing, writes Slate economic writer Matthew Yglesias.


Investors have been buying up foreclosed homes and renting them out, but even that's not enough to satisfy the demand for rentals.


"Finding an apartment to rent got even harder in the third quarter, as the U.S. apartment vacancy rate fell to its lowest level in more than a decade," says Reuters, citing statistics from Reis Inc., a provider of commercial real estate data and services.


More renters in the market

Here’s why the population of renters is growing:

  • Foreclosures. The share of Americans who rent a home is at a record high, in large part because of the millions of foreclosures that followed the real estate crash. Since 2006, the first year the U.S. saw more than a million foreclosures, an estimated 21.57 million homes have been foreclosed on, according to this chart at StatisticBrain.
  • Recovery. By 2012, 45% of 18- to 30-year-olds were living with older family members, says the Federal Reserve Bank of Atlanta. Compare that with 39% in 1990 and 35% in 1980. As the economy recovers, economists expect more workers to find jobs and start entering the competition for rentals.
  • Tighter lending standards. Homeownership has dropped to an all-time low after the crash as lenders grew very fussy about whom they'd offer a mortgage. Homeownership rates in the U.S. fell to 65% in June, after climbing to a record high of 69% in 2005, according to the Census Bureau (see Table 14).
  • Rising home prices. Lenders are loosening up their standards a little (but not a lot). But just as it started getting easier to finance a home, prices began rising -- skyrocketing in some areas. That's also pushing more people to rent, The Wall Street Journal says.
  • Busted boomers.  A growing population of downsizing retirees and empty nesters who've lost retirement savings and need to rent is contributing to the demand.

Rents are rising

All of this translates into rising rents. Given the increased competition and tight supply of homes for rent, it's no surprise that landlords are pushing rents higher.


Reis, which analyzes rents, says the average apartment rent now is $1,073. It rose 1% last quarter and 3% over a year ago. Not one of the 79 markets tracked by Reis saw rents fall.


In fact, the weak growth in salaries and new jobs has kept rents from rising even higher, Reuters says.


"Landlords would like to raise rents faster, but most tenants simply can't afford to pay more right now," Reis senior economist Ryan Severino told CNBC.


In the third quarter, according to Reis:

  • Vacancies. The supply of apartments was tightest in New Haven, Conn., and most plentiful in Memphis, Tenn.
  • Increases. The nation's biggest rent hikes -- 2.2% -- pushed the average price paid to $2,043 per month in San Francisco, and $1,686 in San Jose, Calif.
  • Highest rents. New Yorkers pay the highest rents in the nation: $3,049 per month on average, an increase of 0.9%.
  • Lowest rents. The cheapest rentals in the country are in Wichita, Kan., at $529 per month, a 0.8% increase.

The future for renters

It's hard to tell how high rents will go. On one hand, demand is likely to keep growing. According to real estate brokerage Marcus & Millichap:

The oldest echo boomers just turned 28 years old and will create a significant number of households over the next two years. Additional households will form with the arrival of 1.2 million (to) 1.6 million immigrants annually through 2017.

On the other hand, new construction will eventually absorb demand. Rental investors have been slow to respond with new apartments because construction takes a long time from start to finish. Builders must find and buy land and submit to the local permitting process before they can even break ground.


Rents won't keep rising forever. "'You just can't have double-digit rent growth every year or rents would be a million bucks,' said Bob Faith, founder of Greystar Real Estate Partners, a Charleston, S.C.-based company that owns and operates about 216,000 rental units nationwide," the Journal says.


The National Association of Realtors predicts apartment rents will increase another 4% in 2014. The Journal quotes experts who say rent hikes could continue for three more years.


Has your rent been going up?


More on Money Talks News:

313Comments
Oct 25, 2013 2:48PM
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Recovery,,, What recorvery? What planet do you people live on? There is NO recovery going on for middle class America. 
Oct 25, 2013 2:43PM
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More section 8 coming to a neighborhood near you.
Oct 25, 2013 3:56PM
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I got a good way to free up some space and drop prices on rent..... Send the illegals home!
Oct 25, 2013 2:22PM
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These clowns don't know SH_T, here in Las Vegas there are so many apartments for rent it's a joke, it is not close to recovering, don't believe the BS that's all it is.
Oct 25, 2013 1:52PM
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Awesome. Sounds like my slumlord business is looking on the up!
Oct 25, 2013 3:38PM
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And when the middle class has been sucked dry, the 1% will start to feed off of themselves, weakening them to the point that the 99% will successfully revolt...Hows that for hope n'change?

Now everyone back to work, there are millions of fellow Americans on welfare depending on YOU...

Oct 25, 2013 2:30PM
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You know if our population would decrease the prices for housing would fall and wages would rise...
Oct 25, 2013 3:15PM
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Funny how we can push folks into overpriced Apartments and Rentals but we can't find the WILL to build Affordable Homes. Renting is a never ending Money PIT. There are plenty of homes for SALE. Many of them way overpriced and older than dirt. Yet folks are conditioned for Higher Sale Prices.

Buying an Affordable Home that's been well kept is a Sound Investment. Putting Money in the Money Pit which is Renting isn't. Greed will kill this Nation. Historically, it always has.

Oct 25, 2013 3:00PM
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Why is MSN consistently wrong with it's "facts" whenever it writes a story? The following is no-where near true:

"Tighter lending standards. Homeownership has dropped to an all-time low after the crash as lenders grew very fussy about whom they'd offer a mortgage. Homeownership rates in the U.S. fell to 65% in June, after climbing to a record high of 69% in 2005, according to the Census Bureau (). "

 

HISTORICALLY -the US home ownership rate has been slightly LESS than 65%! It is nowhere near an all time low - hell -even the source they quote (see table 14) bears out that we are still ABOVE the historical average. It's BECAUSE every swinging d**K bought homes that we went through a crisis in the first place, and all the Obama "save my home" programs are merely prolonging it.  

Not everyone is meant to own a home!

Oct 25, 2013 3:48PM
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Go ahead and raise the rent, the people that have jobs will pay it and those that don't have jobs can get help from the government through bogus applications to pay the rent. It can go on as long as those willing to work and pay taxes get so sick and tired of it they quit working....and then what will happen? ANYONE care to tell us????
Oct 25, 2013 3:47PM
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Is that what I got to look forward to. I live in a rent control apt and my rent has steadily risen by 7.5% every year. My rent goes up more than rent stabalized apartments do. The Recovery is not sufficient enough for rents to keep rising like this - People can't afford it, myself included.
Oct 25, 2013 2:11PM
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There goes the old if you raise minimum wage it will just makes things cost more excuse. Costs go up no matter what
Oct 25, 2013 3:30PM
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Another symptom of $17 trillion in stimulus chasing to little supply of goods.  Just how is that Hope and Change working out?
Oct 25, 2013 2:28PM
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PREDICTION:

 

Many people will be out of the housing market, it will be the lowest home ownership rate EVER.

 

Big hedge funds, corporations will eat up a lot the real estate and we will be like surfs.

 

SOCIALISM IS HERE, WELCOME TO NORWAY!

Oct 25, 2013 3:35PM
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This article was written by "MSN Money Partner"...says alot right there, dont it...
Oct 25, 2013 4:17PM
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Rent increases might be one thing,  but if and when small home investor landlords start to exclude people for bad credit reports (probably not entirely their fault),  then we have a problem.
A huge reason why so many people "choose"  to rent is because that's the only housing option left to them at this point.

Oct 25, 2013 3:54PM
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lets see, people lose job and home, investor  byes home rents out, more investors start building apartments, still to many people wanting them, so raise the rents, its ok, two families can share the expenses. So goes the American dream.
Oct 25, 2013 2:02PM
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Housing market is still way to unstable for me to even think about getting into it. I'll stick with renting. It's far easier. Took way to long and lost way to much money on the last house we sold.
Oct 25, 2013 4:10PM
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They forgot higher taxes for almost everybody. My school taxes are going up because of OBAMACARE. Plus taxes on health care premiums. Taxes on about everything are going up.  Counted over twenty new taxes and quit. These taxes will be passed along to everybody
Oct 25, 2013 2:31PM
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My lot rent went up $10.00 and that was the first time since we have been here that it has increased.  New people are charged a higher rate, but current residents have been left at the lower rates.  Now that there are new national owners, who knows what they will do.  We got a 7 year lease and can buy it at the end of the 7 years.  We don't know.  We may, but want to see the trend on land rents first.  When our cat died a few months ago, our rent went down $15.00 (pet rent).  So we are paying less that when we moved in.  We don't really want to buy or own (or maintain) property.  So this is a better set up for us.  We want a place that is nice, but not pricy, that when we travel we have neighbors who care about the area, and office people who can monitor for us.  We want a place, on wheels should we decide to relocate and a place where everything in the home is either rollable, foldable, or collapsible.  I had a home full of turn of the century and WWII furniture, I want cheap yet comfy, light weight furniture that if I had to replace everything, it would be easy without the guilt of getting rid of grandma's and great grandma's things.
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