Rents continue to skyrocket!

The fight against inflation is having an ongoing impact on the U.S. housing market, a market that is putting a lot of pressure on renters and first-time homebuyers. While the Washington Post recently shared that rents and home prices are still climbing, the pace is more subdued as inflation and rising mortgage rates weaken demand. There are fewer people seeking mortgages as demand hit a 22 year low in June. Most of this drop can be attributed to rising interest rates, greater challenges around capital for down payments due to inflation, and also the fear of a pending recession. 

Many people are feeling the pinch between trying to buy a home in an overheated market or staying put and putting up with increasing rents. There are stories all over the country of this happening. The Hustle recently ran a survey of 2,300 renters and 740 landlords to gain more insight into how much rent has gone up in the past year, and why landlords are boosting up their rates. Some of their findings:

1. 71% of renters had rent hikes in 2021-2022
2. The average increase was 14.6% (or $275/mo)
3. In certain hot spots (Miami, San Diego, Austin), average rent went up 25%+
4. 4 out of every 10 renters spend more than 30% of their gross income on rent
5. More than half of all landlords cite market demand as the reason for rent hikes
6. 57% of renters with a mom-and-pop landlord (those who own 5 units or fewer) reported a rent increase, that figure jumped up to 85% for renters with a big conglomerate landlord (10k+ units)
7. 43% of those that had rent hikes had their rent increase more than the annual inflation rate of 9.1% 
8. Roughly 1 in 6 landlords say they hiked rent by 20% or more year-over-year. 

Backing these stats up was a recent report from the real estate brokerage Redfin showed that asking rent on average has gone up 15% in 2022 over last year. And in May, the monthly median asking rent was over $2,000 for the first time. But more interesting is to hone in on what is happening at specific locations so here is a map showing the cities across the U.S. with the highest average rent increases.

What do landlords have to say?

Some definitely defend the increase as being justified due to the overall inflation. The cost of everything has gone up - landscaping, snow removal, materials, labor, insurance, and taxes. One landlord stated, “Insurance and property taxes have increased ~30% YoY [in the] last 3 years. My net income has decreased even though my rents have gone up." However, when asked to identify the main reason they raised rent, more than half of landlords cited market demand, rather than expense-related reasons (inflation, maintenance costs, property improvements). 

Where does that leave renters?

So do people stay in their current rental, move to a new one, or buy? Well, when looking at the buying situation, while the housing market is slowing down, homes aren't getting cheaper anytime soon. With rent increases happening more frequently than pay raises, saving for a down payment remains challenging too. Although home prices also hit multiple record highs in the first half of the year, Realtor.com's analysis found that mortgage rate hikes were the biggest driver of the widening affordability gap between renting and first-time buying. So according to this CNN article: 

For many renters, negotiating a lease renewal may be the best option, because staying put is less costly for most. In 2021, property owners increased rents for new tenants an average of 17 percent throughout the year, while rent increases for those renewing their leases rose only an average of 6.2 percent in the same period. But for anyone relocating for a new job, a deep dive of the destination rental market and options is almost essential right now. Companies that support a person through the process with tools and service partners stand a better chance in this talent market of getting people to get over the reluctance of moving, especially when it can be shown they will make out better overall.