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Big rent hikes around the corner

Demand is high and growing for rental housing. That's why you can expect to pay more.

By MSN Money Partner Mar 21, 2011 1:57PM

This post comes from Marilyn Lewis of MSN Money.

 

The demand for rental housing is cooking up.

 

Renters are warned to brace for price increases that could exceed 10% in the hottest markets, places like San Diego, Seattle and Boston.

 

For the last decade, rents have been stuck, rising at an average of just about 1% a year. Now, one expert predicts, they could rise by 7% a year (on average, nationally) for the next two years, boosting the average rent to $800 a month. Post continues after video.

Rising demand

The economy is improving, boosting demand, says CNNMoney.com, in "Renters beware: Double-digit rent hikes may be coming soon":

"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.

Millions of foreclosures also are adding millions of former homeowners into the competition for rental lodging.

 

At the same time, shifting attitudes also are adding to the ranks of renters. Many Americans are concluding that homeownership is not worth it. "We're learning from our surveys that a huge proportion of people are choosing to rent," Alford says.

Rental vacancy rates, the indication that available units are filling up, have fallen to below 10%. It's the first sign of real movement in three years.

 

Nationally, vacancy rates traditionally are in the single digits. However:

  • Vacancy rates rose to 10% at the end of 2003.
  • Rates hit a high of 11.1% in 2009.
  • They've been dropping, albeit incrementally, since then.

Between 1968 and 1984 vacancy rates stayed mostly below 6%. (The U.S. Census Bureau has tables with regional and national vacancy and homeownership rates.)

 

The rental boom will be a big departure from recent experience. From 2005 to 2010, 1.2 million "boomerang" adult children moved in with parents. Others bunched up with relatives or friends. Landlords have been offering great deals to tenants who'll sign a lease.

 

That's about to be history, says Chris Macke, a real estate analyst with CoStar, apartment developers. He predicts that, soon, many landlords will be unable to keep up with demand.

 

"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."

 

Rents going up

Rising demand of course means rising prices. Lesley Deutch of John Burns Real Estate Consulting told CNN Money that:

... increases will likely top the 10% mark annually for the next couple of years. ... In San Diego, she 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%.

The cities likely to be hit hardest with rent hikes are places where the cost of owning a home is especially high and so renters outnumber homeowners. The article says: "In Manhattan, for example, only about 20% own their homes; in San Francisco, about of third of the population does; in Los Angeles, less than 40%; and in Chicago, about 44%."

A caveat: Depending on where you live, another development could push against the trend toward rising rents -- large numbers of foreclosed homes going up for sale.

In many markets, like Phoenix and Las Vegas, there are neighborhoods filled with recently built, single-family homes going for fire-sale prices. When the cost of owning homes falls well below the costs of renting them, more people will buy.

DIY rent estimates

In such a rapidly shifting rental market, it's hard to tell how much to pay. A couple of online tools are trying to make it a little easier.

 

Zillow.com recently launched "Rent Zestimates," which lets users get an estimate of what a property should rent for. Zillow claims to deliver "estimated rent prices for more than 90 million homes and apartments across the country."

 

Here's how to use it:

  • Plug an address into the search bar here.
  • When you see the property on the map, hover the cursor over it until you see an information box pop up.
  • Click on the address in the box to see Zillow's estimates for its rental value, sale value and mortgage payment.

Downside: As one Zillow user points out, "for multiple occupancy properties … only one Rent Zestimate appears and it doesn't distinguish which unit the Zestimate is for."

 

Here's another rent-price tool to play around with: The Rentometer. This one asks you to input an address, number of bedrooms and monthly rent for a property. It delivers not a rent estimate but a judgment on whether the price asked is high or low for the surrounding market.

 

With rents going up, there'll be plenty of opportunities to try out these toys.

 

Says Zillow: "Most people who move each year (70%) are renters, and, according to a recent survey by Ipsos, nearly two-thirds (61%) of current renters who were polled do not research fair rent prices before signing their lease."

 

More from MSN Money:

27Comments
Mar 22, 2011 10:53AM
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It's all relative. Here in Cochise county, AZ, rents in double-wide trailers go from $300.00 and up. Houses depend on the historicity and location and go as high as $800.00. There are so many empty stick-built houses and mobile homes here if we actually had jobs we could fill some of them. Without the jobs, they are going to sit empty for years.
Mar 22, 2011 11:33AM
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Our one bedroom apartment rent is going from $570 a month to $720 once our lease ends in April. Our rent was $540 when we moved in in August '08. It's ridiculous!
Mar 22, 2011 12:10PM
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LIKE THE MAN SAID "THE RENTS TOO DAMN HIGH!!!"
Mar 22, 2011 1:12PM
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Most landlords aren't wealthy people, they're middle class.  Do you honestly think most wealthy people would want to deal with the headache of tenants?  Rental prices have been skyrocketing where I live for the past two years, this is nothing new.  It's supply and demand.  Supply is shrinking, demand is increasing, the price goes up.  In my area it is cheaper to buy a condo than to rent one.
Mar 22, 2011 11:10AM
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6% increases is about what the real inflation rate is. So no surprise.

But if you want to get into the rental market, remember this: it might take years to foreclose on a homeowner that doesn't pay, but it only takes acouple of months to get a non paying renter out.

How much damage they do in the process is another story...

Mar 22, 2011 10:28AM
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The top 2% wanting to steal more of your income again. Wages do not go up so what fuzzy math equation do they have to demand this one ??????????? Everyone needs to live 5 per home to say stick your high rent in your pipe and smoke it !!!!!!!! Until everyone gets sick of the top raising food--gas--everythin​g but wages this will continue.........
Mar 22, 2011 11:20AM
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Everyone is trying to squeeze the middle class to oblivion. Give everything to the top and it will all be good they will take care of everyone and give everyone great paying jobs----NOT---- I seen in 5 states where republican governors took over they are now raising taxes on the working poor--blind--medicar​e--Arizona--Jan Brewer is taking 100k off medicare but giving corporations tax breaks and nothing to the top 5% ....take from the poor and give it to the corporations--this is happening as we speak and should be sick of the wealthy and corporations getting everything handed to them while killing the middle class.......

Key point they said one expert---trying to get everyone to go out and buy now which is very much a bad thing to do...Fundamentals are not there yet to buy a home--prices will have to go way down like the 98% of the middle class who's income/wages have done that recently. Scare tactic--not working people !!!!!!!

Mar 22, 2011 1:57PM
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People you really need to realize that the majority of small apartment building owners are middle-class.  No matter how many times you type that this all about big business or wealthy people it isn't going to make it so.
Mar 22, 2011 1:39PM
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The article is like others that are pro-business. It's as if a pre-justification for rent gouging as millions of homes sit in foreclosure. 
Mar 22, 2011 10:58AM
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or a cardboard box.. They will do anything to squeeze your last penny out of you.
Mar 22, 2011 10:37AM
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"Let them eat cake!"

 

 

Historically, that worked pretty well, as I recall...

 

Wink

Mar 22, 2011 2:58PM
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Wac72:

 

There is no definition for "reasonable rent", it is too subjective.

 

Market rent is rental income you could expect,  based on current rentals being paid for similar properties. Market rent depends on location, size, age, and other value amenities of the property.

 

Most rents are based on what the market will bear, as landlords typically look to maximize returns. Nobody calculates reasonable rent, the typical residential rental income investor purchases the property for as cheap as they possibly can, fix it up for as little as they can, then estimate market rent to see how much return on investment they can make. No thought towards reasonable.

Mar 22, 2011 9:58AM
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well when rent gets too high you can live in a 5th wheel like
Mar 22, 2011 2:23PM
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The boom is always the biggest just before the bust, and the bust is always the worst  just before the boom.

 

We have had five years of declining values, with many homeowners bailing out either by foreclosure or short sales. This country requires 500K new home starts a year to keep up with demographics (read population growth). We have had less than 100K new home starts for 5 years, because it is cheaper to buy foreclosure and short sales properties, than build new construction. Improvement costs have not gone down much, all the value lost has been in land value. Once the crap (foreclosures and short sales) properties are out of the pipeline, hold on to your butt, cause things are going up. Inflation is on its way and real estate values generally appreciates evenly with inflation.

 

There is a lot of pent up demand for home ownership, due to being able to rent cheaper than owning. Values on home ownership plummeted, Apt rents saw some decline, but not as much as single family homes. NOW IS THE TIME TO INVEST IN RENTAL PROPERTY, we are pretty much at the bottom of the market. Prices will not get better, rates will start to go up.Angry

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It will just add in to the homeless population.  This is really bad.  To bad that they did not

build more apartments.  Boston is mostly more apartments.  Well they use to be and got changed into Condo's. 

It is sad that there are not enough places for people to live and a great deal have to live on the street.

The Cities could have had a lot of  revenue if they had the builders build apartments but, can't change history.  It is not like it was 30 years ago. 

Mar 22, 2011 2:00PM
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Quite obviously, something is drastically wrong in our nation today...  And, just as obviously, our congress does not know what to do about it.
Mar 22, 2011 11:19AM
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This is all relative to the area you are in.  However, a lot of this story is hype the scare and run away.  Tomorrow will be a story about how you should be buying a home now if you're currently renting.

 

I rent, in my area housing prices just didn't take the hit they did in a lot of places in the US and they still need to drop a good 20-30% before I even think about it.  It will happen as people are getting evicted and banks are having issues moving that inventory.  So much to the point they are removing houses from the market for a time and then placing them back on the market later, even though any local that has went shopping knows the house is empty.  Until housing prices drop in a neighborhood I want to live in I'm going to stay a renter.

 

Now lets look at the other side of the coin.  My community is in a nice area, has had a leasing drive going on and off every 2-3 months, they aren't overly full, the buildings are getting older, and we just had a 'contest' where the first 20 people who paid their April rent this last weekend (a full 2 weeks early) got entered for a gift card.  You don't do that type of crap unless the cash flow is hurting because you've got units open and dead head renters lining up for eviction.  If anything rents are going up because less people can pay.  So the burden falls on those of us that are left.

 

Fact is everyone is shooting themselves in the foot, banks and landlords.  Deflation needs to occur to bring pricing for necessities back in line with wages.  But no one wants to take the hit.  Banks need to be forced to blink first.  They are the ones backed up by Bernanke and the printing press.  Unfortunately don't wait on the FED or government to push them too.  Landlord can then follow.

Mar 22, 2011 1:32PM
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buying is always cheaper than renting in the long run but that is not a choice that many middle class people have especially if they've had a child. Even if interest rates are low and spend money that isn't really yours. spend money that isn't really yours. that's an interesting phrase given that capitalism pivots on that concept yet is often labeled as socialism.
Mar 22, 2011 11:00AM
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Here's some BS being spun people right now don't have money when it's time to pay the rent there are so many eviction notices posted for late payment and the rent is cheaper than 8 years ago, so how can that be reality that rent will be going up..... Seems to me its a ploy to sell those homes that were foreclosed on as a investment scheme ........ What a joke
Mar 23, 2011 9:20PM
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Another statistically inaccurate article by the by the MSM.  Checkout this link for the real story of Seattle rents:

http://seattlebubble.com/blog/2011/03/16/are-seattle-area-rents-poised-to-shoot-up-again/

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