Economists predict rent will be among the fastest rising portions of household expenses.
Market Experts Predict 2022 Rent Hikes to Build on 2021 Hikes
According to ApartmentList, average rents for a one-bedroom apartment in Phoenix more than doubled year-over-year. Data from Zumper indicates that rents in Manhattan smashed records as life gradually returns to cities. New data from the latest Miller Samuels Douglas Elliman report indicates that the Manhattan rental market grew its median rent by +16.7% y/y in November while the net effective median rent for the city as a whole by +22.8% y/y.
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In a recent report from CoreLogic, rents for single-family homes nationwide jumped more than 9% in August 2021.
Current Rent Prices
Take a look at these rent prices in large metros as of October 2021:
- New York City – $3,100
- San Francisco – $2,800
- Boston – $22,530
- San Jose – $2,310
- Washington DC – $2,240
- Los Angeles – $2,140
- Miami – $2,070
Even in smaller towns across the country, rental prices have and continue to soar. For example, average rents in Gilbert AZ have jumped a whopping +116% y/y!
According to the Consumer Price Index, households across the country are spending their dollars on…
- Housing – 42.4%
- Transportation – 15.7%
- Food/Beverages – 15.2%
- Medical Costs – 8.9%
- Education & Communications – 6.8%
- Recreation – 5.8%
- Other – 3.2%
Why Is Rent Rising So Fast?
Housing experts and economists say that the problem of soaring rents began years ago.
Experts such as Mark Zandi with Moody’s Analytics, Diane Olick with CNBC Real Estate, and Lawrence Mishel with the Economic Policy Institute shared their views with CNBC’s Business News.
Zandi pointed to strains on the housing construction market that were taking hold well before the pandemic as far back as the Great Recession. Zandi said that housing construction essentially stalled in 2008. Completed new homes plummeted to just 500,000 in 2008 and even now, in 2021, the number of newly constructed homes has not “caught up” with the number of completed new homes in 2008.
Now, since the pandemic, residential construction is hampered by rising costs and shortages within both materials and labor plus supply chain disruptions. Zandi said, “There’s a lot of evidence that the lack of housing closer to where demand is and urban cores is having a meaningful negative consequence on long-term economic growth.”
Olick specifically pointed to the tech industry’s outmigration from core urban cores to smaller, more affordable markets, such as Pittsburgh, Austin, Charlotte and San Antonio. According to Olick, more people in smaller markets = more demand in smaller markets = higher housing costs everywhere.
Mishel underlined the fact that wages and benefits have been suppressed since 1979. During the Great Recession, wages and benefits strangled lowest wage earners even more. Now that for-sale and rental prices have exploded while wages and benefits have only limped along, more and more people across the economic spectrum can afford little beyond their monthly housing costs.
Rental Demand and Soaring Rental Prices Encourage Investor Participation
It’s not surprising that institutional investors are basically tripping over one another to get a piece of rental housing sector. In fact, the investor share of the for-sale single-family home market, now more than +16%, has never been higher. Investors are boosting much needed rental housing supply of both existing and newly constructed homes and then renting out those homes to middle income households who would have wanted to buy them if they could have competed for them.
Many of the new homes investors are building are priced at the high end of the market with the end result being that renters will simply be paying higher rents.
As Zandi said, “This problem of soaring housing costs was not created overnight…it took years…and it will take years to fully solve this problem.”
Thanks to CNBC.