How much will your home rent for?
Home prices and sales may be flat, but the rental industry is booming. The
percentage of renters is on the rise, the number of households are increasing
and more Americans are downsizing, all of which point in a single direction:
rents are on the rise.
At the peak of the housing boom, homeownership in America reached an all-time
high; 69.2%. Today that number has plummeted to fewer than 67%, which may not
sound like a huge drop, but that represents roughly 3 million households that
were owner-occupied and are now tenant-occupied. The high foreclosure rate has
accelerated the transition towards leasing, but there are a myriad of other
trends coalescing to boost demand for rental housing.
For the first time in forty years, demand has been shifting towards smaller
dwellings; coinciding with a shift in demand towards urban centers. Baby boomers
are considering downsizing, moving towards areas with more amenities and
Generation Y is just hitting their single, urban-living years. Only the
relatively small Generation X is in the buy-a-large-house-in-suburbs, which
means the demand for the traditional single-family home with a white picket
fence is weak.
The number of households in the U.S. was artificially stifled during the
Great Recession, as people took on roommates, moved in with family or remained
with their parents longer than they would have otherwise. It’s estimated that
1.2 million young adults moved back with their parents from 2005-2010, which
does not include the number of adults who moved in with roommates, or those who
would have moved out of their parents’ houses but didn’t because the economy was
so bad. Now, however, these artificially joined households are separating, the
vast majority starting with a lease agreement.
Rental vacancy rates are sharply on the decline as well. In the first quarter
of 2011, rental vacancy rates had dropped to 6.2% according to Reis, Inc. who
tracks nationwide residency data. This figure is down sharply from the 8%
vacancy rate just one year earlier.
Which, of course, means that rents are on the rise. Reis tracks data for 82
metropolitan areas in America, and of those, 75 experienced increased rents from
early 2010 to early 2011. Furthermore, the nationwide average rental amount rose
from $967 in early 2010 to $991 in 2011.
Each of these indicators are entire topics in themselves, but the bottom line
is that the rental industry is on the rise and most real estate experts agree
that its growth will accelerate rapidly over the next three to five years.
Apartment building construction is already responding to the growing demand for
rental housing, but with so much of the construction industry either out of
business or licking their wounds, it’s anticipated that there will be a rental
housing shortage in many major cities around the country over the next few