Renting a home has gotten increasingly expensive over the last five years. The average U.S. rent has climbed 14 percent since 2010, according to commercial property tracker Reis Inc. That’s four percentage points faster than inflation, and more than double the rise in U.S. home prices over the same period.
“The only relief in sigh is rents in the hottest markets are going to go up at a slower pace, but they’re still going to go up” says Hessam Nadji, chief strategy officer at Marcus & Milchap, a commercial real estate firm. The main reason, more people than ever are apartment hunting.
Young people who have been living with their parents are increasingly finding jobs and move out. Rising home prices are leading many long-time renters to stay put. In addition, most of the new apartments coming on the market are aimed at affluent tenants and carry higher-than-average rents. That’s especially true in cities where new buildings re going up in urban core areas, which means builders need to recoup high land and development costs.
During the last recession many workers who lost their jobs moved in with relatives or took on roommates. About 32 percent of U.S. adults were living with roommates or adult family members in 2012, up from 27.4 percent in 2006, according to Zillow, an online real estate firm. Stepped up hiring has begun to reverse that trend. About 2.8 million ore Americans have jobs than 12 months ago. More people vying for apartments helps drive rents higher and metropolitan areas with faster growth are generally seeing higher-than-average rent hikes s well.
Home Buying Delayed – Traditionally, renting has been a stepping stone toward homeownership. When rents rise, tenants are motivated to buy sooner, especially when interest rates are near historic lows, as they are now. Between higher rents taking a bigger bit out of the bank account and sharply higher home prices, potential buyers are having more trouble saving for a down payment and qualifying for a mortgage. Any many millenials or 18 to 34 year olds, simply prefer renting. When renters stay put, fewer apartments are available for new tenants, which in turn drives up rents.