With rising demand for rentals, landlords are increasing their rents and some cities are even posting double-digit percentage rental increases annually. Apartment rents have risen at their highest rate since 2007, with costs soaring over the last three quarters, according to the research firm Reis Inc.
Landlords feel they can charge more since vacancies have reached at a 10-year low at the same time that demand has surged. Asking rents have jumped nationally to $1,091 during the second quarter, the largest increase since the third quarter of 2007, Reis reports. The average effective rent is $1,041 for the second quarter, increasing 1.3 percent over the previous quarter.
"The improvement in rents is pretty pervasive," says Ryan Severino, a Reis senior economist. "Even in places like Providence and Knoxville, which you don’t think of as hotbeds for apartment activity, landlords felt the market was strong enough to raise rents on their tenants."
New York remains the market with the lowest number of vacancies and also the priciest place to rent by far. The monthly rent there averages $2,935, which is more than $1,000 higher than the second-priciest place to rent in the U.S., San Francisco.
Many finance experts recommend budgeting no more than 30 percent of household income to pay for housing costs. Yet nearly 40 percent of Americans are now paying more than a third, according to a U.S. Census Bureau survey. In New York, one-third of households spend more than half their pay on rent.
"We have falling incomes, rising rents, and nothing but substantial upward pressure on those rents," says Chris Herbert, director of Harvard University’s Joint Center for Housing Studies. "And nothing in the cards suggests it will turn around anytime soon."
Meanwhile, for those who are able, purchasing a home has never been more affordable. It’s cheaper to purchase a home than rent in basically every major U.S. city, according to John Burns Real Estate Consulting.
But securing financing remains a renter’s biggest obstacle to buying a home. Banks are pickier in what they require to qualify for a mortgage. Loans for home purchases reached a 12-year low last year as lenders tightened their credit standards, according to Inside Mortgage Finance. Now, potential borrowers often need an average credit score of 762 to get a mortgage backed by mortgage giants Freddie Mac or Fannie Mae, according to Morgan Stanley research.
Source: “Americans Squeezed by Higher Rents, Tight Credit,” Reuters News and “U.S. Apartment Rents Rise at Highest Rate Since ’07,” Reuters News