Big rent hikes around the corner

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.

• Calculator:Should you rent or buy?

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%."

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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:

• The rising costs of renting
• Cities with the steepest rent increases
• Rents grow as demand increases
• The ARM is back: Should you bite?
• Is it safe to buy a foreclosure?
• Are you crazy to buy a home now?