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Rental Rates Expected to Rise Faster Than Rent in 2016

Written by Posted On Tuesday, 01 March 2016 06:01

There are many considerations that go into the decision to buy a home or to rent, but if you’ve been sitting on the fence trying to decide what to do, some new statistics may help make the decision easier. Experts are predicting that in 2016, rental rates will rise faster than home prices and even faster than your paycheck. This indicates that 2016 may be a good year to say goodbye to your landlord and start looking at new homes for sale.

 

Rent Rising Faster Than Home Prices

Trulia’s housing market experts regularly monitor rents and home prices to report on current conditions and trends. In September 2015, they found that nationally, rent costs rose 6.5 percent as compared the prior year, faster than the 6 percent increase in single family homes. The conditions that fueled the increase are still present today, leading experts to believe that rent will continue to rise faster than home prices in 2016.

 

Rent Rising Faster Than Wages

Other real estate experts have analyzed HUD data to try and make predictions for the coming year. After crunching the data, these experts predict rent will probably rise about 3.5 percent in 2016. In 2015, wages only grew 2.6 percent, and although wages should raise a little more this year, rent increases are still predicted to outpace wage increases. This prediction holds for 58 percent of U.S. housing markets.

Larger rent increases (as compared to wage increases) are particularly problematic when you look at the percentage of the average American’s paycheck that goes to rent in the first place. Financial advisors recommend not spending more than 30 percent of your income on housing costs. However, studies have found that over half of all people in the Unites States spend more than 30 percent of their income on housing. Looking at rent specifically, research has shown that 27 percent are spending more than half of their income on rental costs.

Renters who pay more than 30 percent of their income on their monthly rental fees are scattered in cities and states all across the nation. This interactive map from the Harvard Joint Center for Housing Studies shows the entire country is full of “cost-burdened households” – those who pay 30 percent or more of their paycheck for rent.

The moral of the story – if rent continues to increase faster than wages, it will take up an even larger percentage of your weekly paycheck.

 

Rent Could Raise Even Higher

As noted above, when experts looked at HUD data, they ended up with a prediction of a 3.5 percent rent increase for 2016 – which is higher than predicted wage increases. However, others have used alternative data and have reason to believe that rental rates could jump even higher than this.

A Rent.com survey went right to the source when trying to create predictions for 2016 – property managers. They surveyed over 500 U.S. property managers who represent hundreds of thousands of rental units across the country. The survey found that during the prior 12 months, 88 percent of these property managers had raised their rental rates “and there doesn’t appear to be any sign of stopping.” Sixty-eight percent say that rents will continue to rise during 2016 by an average of 8 percent.

Even those who have rented the same location for some time are not safe. The survey found that 53 percent of property managers are more likely to bring on a new tenant at a higher rental rate than to negotiate and renew a lease with a current tenant.

 

Factors That Impact Rising Rental Rates

Rental rates are impacted by the laws of supply and demand, just like any other commodity on the market. On the supply side, the national vacancy rate is extremely low. In the second quarter of 2015, the U.S. Census found that vacancy rates for rental housing were only 6.8 percent. A lower vacancy rate means there are fewer rental units available. On the demand side, we are seeing increasing demand for rental housing, driven by a growing economy and people choosing to rent instead of buying a new home.

What all this means is that we are experiencing an increase in demand for rental housing along with a smaller supply of rental units that cannot keep up with that demand. These factors produce higher rental rates.

 

 

Renters should expect to pay higher rates in 2016 with rent consuming a larger portion of most paychecks. For those who have decent credit and some money saved up, it’s an ideal time to buy or even build a new home to help improve your financial situation.

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Shannon Gaskamp

www.princetonclassichomes.com/

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