Rents Rising

Rents continued to increase in the latest data, with a 2.4 percent gain from one year ago in November. The pace of increase has been stronger than that of the past five months, rising at an annualized rate of 3.0, 4.6, 2.8, 4.8, and 2.8 percent from July to November. That means that 12-month rent increases will move even higher in the upcoming months. Steady declines in apartment vacancy rates imply additional pressure for higher rents in the near future in many markets. With so little new housing construction, well below the 1.5 million needed to accommodate the rising population in normal years, the declines in vacancy rates as the household formation returns will occur throughout next year. Be mindful that the United States adds about 3 million people each year. However, many people have been living with additional roommates or with parents, thereby not creating additional housing demand over the past 3 years. But the improving economy and the job market conditions will permit more people to seek out their own housing.

In addition to apartment rent, there is something called owners’ equivalent rent, which is rent that the homeowners would have collected if they were renting out their property to someone else. There is a lot of fuzziness in creating this data, but going with the figures generated by the Bureau of Labor Statistics, the owners’ equivalent rent rose 1.7 percent from one year ago. As with apartment rent, owners’ rent has also been accelerating higher.

Assuming rents increase in the future years similar to past years, the anticipated rent projections are as follows below.

Past performance is no guarantee of future performance, but these figures are something to ponder by financially well-qualified renters and by real estate investors. For those who do enter the market and buy, taking out a 30-year fixed rate mortgage will assure constant non-increasing payment obligations for the next 30 years.