Apartment Rental Prices Are On The Rise

Smaller markets leading the charge as vacancies shrink

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In a simple case of supply and demand, apartment rental rates in the United States rose by about 4.5% in 2015 according to real estate research firm Reis. 

“Part of the reason for the upward pressure on rental rates in the U.S. is the low vacancy rate. The current vacancy of 4.4% is the lowest in years,” says Shan Ahmed, an analyst and researcher at Reis.

In addition, there seems to be a shift from the biggest price gains coming in major metropolitan areas like New York and San Francisco, to different parts of the country.

“In a break from the overall trend during this recovery, smaller markets led the charge on rent growth during the fourth quarter. Seven of the top markets ranked by quarterly effective rent growth – Salt Lake City, Portland, Charleston, Nashville, Charlotte, Palm Beach, and Sacramento,” says Victor Calanog, Ph.D., vice president of research and economics at Reis.

“This represents a bit of a shift in the marketplace. Major metros had been taking the lead, but with record high rents for many large markets, it was perhaps inevitable that rent growth should take a slight breather,” he adds.

[Related: Nearly Half of American Renters Are Struggling to Pay Their Rent]

There has been growing demand for rental properties in recent years, as the sluggish economy and stagnant wages make homeownership, particularly saving for down payments, out of the reach for many. That’s made it difficult for construction rates to keep pace with demand. That pressure ‘to keep up,’ is expected to subside a bit in the coming year, which could slow the price gains.

“New completions in the future could cause the vacancy rate to rise slightly over the next few years. This could cause rent growth to slow its upward trend,” says Ahmed.

Regardless, if rising rents are causing you, like so many people to wonder whether it makes better sense to buy, Rick Kahler, president of Kahler Financial Group, offers the following advice:

  1. What can you afford? You should spend no more than 30% of your after tax income on housing costs.
  2. How long do you plan to stay in your home? If you’re not there for at least two years, you may want to rent.
  3. Mobility – you may be at a stage in your life or your career where you want to be able to move to pursue opportunities.

If you do decide to rent, be sure you’re creating long-term financial security in the financial markets. “Long-term renting can be a wise choice when renting costs substantially less than owning. It may make sense if you want to move to a beach area or big city. It also may make sense, when you move frequently, or when you invest enough to assure your financial independence,” says Kahler.