Rent increases are slowing down finally. Here’s why and what to expect.
By Erik J. Martin
CTW Features
For years, we’ve been bombarded by real estate headlines announcing the high cost of leasing and lack of affordable rental properties. Now, thankfully, renters can enjoy some good news for a change: the pace of rental increases appears to be slowing.
Per a new report from Zillow, rents grew only 0.7 percent over the past year, representing the slowest rate of appreciation observed since late 2012; today, the median rent payment nationwide is $1,408. The study credits new construction with helping to soften the rental market and meet rental demand.
In addition, 59 percent of respondents to a recent Freddie Mac renters poll expect to rent their next home – up from 55 percent tallied last September; 52 percent say renting is currently a good choice for them versus 46 percent in January 2016; and 41 percent reveal they have enough funds to last beyond every payday, compared to 34 percent last September. Meanwhile, only 15 percent say they’re working toward homeownership and 41 percent expect to own, down from 21 percent and 45 percent, respectively, in September.
Jay Denton, senior vice president of analytics at Dallas-based Axiometrics, a firm that tracks apartment market data, found that he wasn’t surprised by any of these findings.
“Renting by choice, whether it be an apartment or single-family home, can be a very attractive and flexible option, especially in a world where people are used to instantly getting what they want,” Denton said.
A major factor contributing to increased renter optimism and the rent increase deceleration is healthy rental inventory, according to Shane Lee, statistical data analyst for RentHop in New York City.
“While the supply of homes for sale tumbles toward an all-time low, a lot of the new developments and homes being built are being dedicated to rentals, as many landlords and investors see better long-term profits through rentals,” Lee said. “They’ve been offering incentives like months of free rent to keep tenants.”
Ernie Rafailides, managing member with Bayview Management LLC, a rental property management company in Towson, Md., agrees, noting that many landlords and developers have had to lower their prices or create incentives to keep their rental units occupied.
“Over the last five to 10 years, developers have been primarily building luxury apartments, and now there’s an oversupply,” Rafailides said. “Up to now, working class families and couples and middle-income Americans having been largely ignored. But serving this market would yield the most growth.”
Absorbing all the new rental inventory now available will likely take two years or longer, according to Stan Broekhoven, agent with Keller Williams Tribeca in New York City.
“Because of high rents, people have been leaving Manhattan and are moving to the outer boroughs,” Broekhoven said. “But now, a lot of new rental inventory in Manhattan is coming to the market, giving renters more options and driving down prices.”
Lee predicted that rent increases will likely continue to slow and moderate over the next couple years.
“Many condos and buildings will be launching in the next two years, increasing the influx of supply,” Lee said. “Plus, the domestic economy has started slowing down – if we enter a recession, it’s likely that this slower rate of rent increases will continue.”
Many believe renting remains the best option currently for millennial buyers and younger for the foreseeable future, but every individual circumstance will differ.
“If you want to settle into one place for a while, build some equity and enjoy more space, owning a house could be a good option,” Denton said. “If you lack the down payment required and prefer flexibility, enjoy convenient neighborhood amenities, and like having other people take care of maintenance, then renting an apartment may be the right choice.”
To help you make a more informed decision about whether to rent or buy, work with a professional real estate agent who knows the market, the inventory and who will negotiate the best deal for you, according to Broekhoven.
© CTW Features