If you rent a home or apartment, you\u2019ve likely seen your rental prices increase repeatedly over the past few years. You aren\u2019t the only one in this situation. Rent prices are climbing all over the country, and some prices are so high that finding housing you can afford may seem impossible. <\/p>\n\n\n\n
The result is a stressful situation, especially if you\u2019re currently looking for a new apartment or home to rent. The search might feel futile, and you may feel like you simply can\u2019t afford to live anywhere. <\/p>\n\n\n\n
So why is rent increasing? Multiple factors are affecting these climbing prices. <\/p>\n\n\n\n
Inflation, or broad-based price increases throughout the economy, means that all of your expenses are increasing in cost, including groceries, cars, and rent. This increasing inflation means that a dollar is worth less than it used to be, so you need to earn more today to maintain the standard of living that you had five years ago before prices increased. <\/p>\n\n\n\n
At its roots, inflation is caused by supply and demand. Demand-pull inflation occurs when the demand for goods and services increases, but the supply doesn\u2019t increase enough to fully meet that demand. Prices increase, as a result. <\/p>\n\n\n\n
Additionally, cost-push inflation can drive prices up. Cost-push inflation refers to an increase in the production costs of creating a product or supplying a service. For example, as the cost of lumber and labor increases, those factors drive up the cost of building a home. Buying that home is more expensive, and then the homeowner needs to ask for higher rental rates to make up for that higher purchase price. <\/p>\n\n\n\n
There are five key reasons contributing to inflation and climbing rental prices. <\/p>\n\n\n\n
Supply chain issues are affecting the cost of new building materials and delaying projects. With an increased demand for houses for sale and rental properties, the slowed production rates contribute to the overall shortage of new properties. <\/p>\n\n\n\n
Building an apartment community isn\u2019t a quick-turnaround project, either. Most apartment communities take about two years to complete, and those timelines are extended by a lack of supplies and limited labor availability. Some builders are also facing delays in getting building permits, which also extends the completion time of each project. <\/p>\n\n\n\n
Those challenges are also affecting the single-family home construction industry. Underbuilding over the past 10 years has resulted in a single-family home shortage, and high demand for these homes drives up their cost. When potential homebuyers can\u2019t purchase the homes, they decide to rent, and that contributes to rising rent costs. <\/p>\n\n\n\n
High-income households who decide to rent are looking for luxury rentals. These households include dual income no kids households, empty nesters, and households who have the financial capability to own a home, but who decide to rent. <\/p>\n\n\n\n
Since these types of households have a higher income, they can pay higher rental rates, and they expect luxury properties. To appeal to these high-income households, landlords are upgrading their units and passing those renovation costs along to the renters, which drives up rent prices. <\/p>\n\n\n\n
The COVID-19 pandemic prompted many significant lifestyle changes, including the accelerated adoption of remote work and a desire to have more space. That remote work adoption allowed many Americans to relocate more freely. <\/p>\n\n\n\n
As Americans relocated, they sought out desirable locations, like Orlando, Florida, and Austin, Texas. They also turned to rural communities with a lower cost of living. With more people moving to these locations, housing shortages were exacerbated, and housing costs increased. <\/p>\n\n\n\n
>> Related Read – <\/em><\/strong>Why (and Where) Millennials Should Buy a Home<\/a> <\/p>\n\n\n\n Even the Federal Reserve impacts rent rates. Over the course of the pandemic, the Federal Reserve kept its interest rate lower<\/a> than it\u2019s been previously. The interest rate of 2.33% is lower than the inflation rate, which reaches 7 or 8%. That large gap in the rates isn\u2019t standard, and it was only previously seen in the 1970s when inflation notably increased. <\/p>\n\n\n\n Low interest rates tend to increase demand for the property since buyers want to take advantage of those low rates. Buying a home when interest is low could save a buyer significant money over the life of their loan, but that increased demand drives up home and rental prices. <\/p>\n\n\n\n The increased demand for property results in higher purchase prices, since buyers are willing to pay these higher prices in a highly competitive market. As property values increase, rents inevitably increase, as well. <\/p>\n\n\n\n Most landlords set their rent prices by charging a percentage of the total value of their property. Landlords might charge $1,000 to $1,750 per month in rent for a home valued at $150,000. Should the property\u2019s value increase to $300,000, that rent could double to $2,000 to $3,500 per month. <\/p>\n\n\n\n >> Related Read –<\/em><\/strong> Top 7 Reasons to Buy a Home Instead of Rent<\/a> <\/p>\n\n\n\n Experts believe<\/a> that rental prices will remain high through most of 2023. The price increases should slow, but it\u2019s unlikely that prices will return to their pre-pandemic rates. The good news is that rates should start to taper off in the second half of 2023, as well as home financing costs could be expected to decline. The Federal Reserve is anticipated to avoid continued interest hikes, and that should help to keep rental costs more manageable. <\/p>\n\n\n\n Consistently paying higher rent prices can be frustrating, and searching for a new affordable rental property when prices are so high may seem impossible. As a homeowner, your monthly payments would be going toward your mortgage and building equity, so it\u2019s natural to toy with the idea of buying instead of renting. But it\u2019s also important to make sure that you\u2019re truly ready to make that transition. There are a few situations where the decision to buy a home may be a wise one: <\/p>\n\n\n\n >> Related Read –<\/em><\/strong> How to Save Money for a House While Renting: 9 Top Tips<\/a> <\/p>\n\n\n\n4. Federal Monetary Policy <\/h3>\n\n\n\n
5. Rising Property Values <\/h3>\n\n\n\n
Where Will U.S. Rent Prices Go from Here? <\/h2>\n\n\n\n
When to Transition from Renting to Buying <\/h2>\n\n\n\n
The higher your credit, the greater your chance of getting a low interest rate. Taking the time to build up your credit rating can save you thousands of dollars over the life of the loan, and it can make your mortgage payments more manageable.
If your credit isn\u2019t great, consider continuing to rent for a while as you build it up. Focusing on making all of your monthly payments on time is the first step, so consider setting up automatic payments so you don\u2019t miss any deadlines. Try to use 30% or less of your available credit, which shows you can manage your money wisely and don\u2019t depend on your credit. Focus on building up a long credit history, and consider keeping your oldest accounts open to help with the average age of your credit accounts. <\/li>
You will also need to plan for other expenses that come with homeownership. Consider costs like home insurance, utilities, and home maintenance. It\u2019s also important to have an emergency fund set aside for any major repairs that your home might need. <\/li><\/ul>\n\n\n\n