Rents Up Everywhere. Is Now the Time to Buy?
Renters have probably noticed: rents are up, way up, all across the country.
Famously expensive cities have only gotten more expensive. For example, a report released by the National Low Income Housing Coalition in March of 2012 names San Francisco as the most expensive place in the country to rent housing now that the average rent on a two-bedroom property has jumped to $1,905 per month. Meanwhile, New York City posted a 7% increase, year-over-year, in its already sky-high prices this May. But even traditionally less expensive metropolitan areas are becoming more expensive for renters this year. San Jose, California rents have gone up over 10% from last year. Parts of Chicago, IL are up over 9%. In Denver, CO, data show average rents in the metro area rose to $952 in first quarter of this year from last year’s average of $911.
What’s Driving Rents Up?
While there are multiple factors influencing rent increases, we’ve narrowed it down to three in particular worth exploring further.
- Stricter Lending
With appraisal reform, a deluge of REO/bank-owned properties, and lenders becoming extremely risk averse, many would-be buyers have been having trouble qualifying for loans. Some people can pick up from a failed escrow and try again, but others won’t, which means those would-be buyers are still in the renter pool. When demand outpaces supply, landlords can ask (and get) higher rents.
- Decreased Construction
Density is key in urban renting, but with the economy’s downturn, construction of large buildings has stalled. The fact that the cities with the toughest anti-growth regulations are also the most expensive is no coincidence. San Francisco, famous for its tough permit process on new construction, offers case and point. National news on new construction permits for 2012 has been positive, with regional reports of an increase 50% or more, but actual construction starts are down. This means that though permits have been filed, the actual building of the intended structure hasn’t always commenced. Local mayors and governors can ease the situation by encouraging smart construction, but they would have to make it a priority over the many other issues that face local governments. Even then, it would take time before multi-unit buildings would be ready for renters.
- Foreclosed Properties Sitting Empty
Banks, as we know, currently hold title to approximately 650,000 foreclosed properties. They don’t want to be homeowners, but they fear dumping the homes and flooding the market with low value properties, and they fear those low values in general from an investment standpoint. In short, they haven’t been very motivated to part with these foreclosures. But new pilot programs allowing foreclosures to be used as rentals offer hope- the homes won’t tank local property values this way and they help supply more units to meet demand.
The problem with this solution is that the majority of foreclosures are in places like Las Vegas, NV and Tampa, FL, Releasing thousands of properties in those cities won’t do anything to stop inflated rents in cities like New York, NY or San Jose, CA where foreclosures aren’t as prevalent.
Time to Get Out of the Rental Market?
Not hard to see then why all over the county, buyers have begun bidding on homes—and bidding competitively. National average rents are up; housing prices haven’t recovered to their pre-bubble level; interest rates are incredibly low. If you’re a renter with a stable job, a good credit score, and the desire to put renting behind you, now is the time to consider becoming a homeowner. Talk to your local Realtor(R) and begin your home search with ZipRealty.
Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert.