U.S. Rental Prices Up as Demand Outweighs Supply

According to the latest housing index from the National Association of Realtors (NAR), demand for rental properties in the United States is high, and rental prices have steadily increased during the first quarter of 2014.

In addition, rental prices are expected to grow throughout the year, which is great news for anyone interested in USA investment properties.

In March, 48 percent of homeowners who rented their properties reported that rental revenue had increased over the past 12 months, but in February, this rate was only 46 percent. The higher rental rates are having two effects that have worked to balance each other. On the one hand, the high rents would seem to be forcing people into the buying market. On the other hand, rents are so high that many renters are having trouble saving money for the down payments required to buy homes.

rental property in demand“The March data indicates a more upbeat confidence concerning market conditions compared to February,” said Lawrence Yun, chief economist of the NAR. “The improvement may reflect the seasonal uptick in demand with the onset of spring,” Yun continued. “Confidence about the next six months also showed a slight improvement in March compared to February.”

The two primary reasons for the increase in rental rates are the low inventory of rental homes in most markets and the difficulties many U.S. residents face when qualifying for home loans.

A shortage in the supply of rental homes has been reported in several states across the country, but demand remains strong in nearly every region. The second problem is part of a national epidemic.

Approval requirements for mortgages in the U.S. are very strict, which is keeping many people from becoming homeowners. Even potential buyers with good credit are having problems meeting the minimum qualifications for home loans.

Another problem many people face when trying to buy homes is being able to afford the mortgage insurance required by the Federal Housing Authority (FHA). In addition, new homes in many areas are required to be insured against flooding, and flood insurance premiums are very high at the moment.

While buyers seeking USA investment properties can avoid this problem by purchasing properties in other areas, many residents are unwilling to relocate because of their jobs or ties to their respective communities.

APRIL 2014 PRODUCES STRONG GROWTH

April 2014 also showed strong growth in the home rental market. Rental prices increased by 3.4 percent over the previous year, and the occupancy rate increased to 94.8 percent. This growth came as an unexpected surprise to many market analysts who had predicted that rent prices and occupancy rates would begin leveling as of the second quarter of 2014.

April 2014 has been the best month for rent growth since the Great Recession began in 2007. According to the research firm Axiometrics, Inc., monthly rent increases occur at the beginning of nearly every year and then decline again around August or September. However, the increase that has occurred during the first half of the last four years has been much higher than the decrease at the end of each those years, which has had the cumulative effect of creating annual increases for several straight years.

A report titled U.S. Macro and Multifamily Market Trends published by Axiometrics states that the current rental price increases are simply a function of supply and demand. When the economy first began to recover in 2011, rent growth went into double digits because job growth was minimal and new apartments were added to the existing inventory. Today, job growth is still only moderate, and the inventory of apartments is expected to increase by 200,000 units by the end of the year.

Majority of Cities Showing Improvement

So far, only two markets showed declines in rental prices. Rates decreased by 0.5 percent in Washington, D.C., which is considered a major market, while prices decreased in Baton Rouge, Louisiana, by 3.4 percent. However, Baton Rouge is only considered to be a secondary market.

The highest growth in rental rates for USA investment properties occurred in the following markets:

• Rental rates in the Bay Area of California, which includes San Francisco, Oakland and San Jose, rose by 7.9 percent, 9.3 percent and 9.2 percent, respectively.
• Odessa, Texas, is a secondary market, but rent prices increased by 11.6 percent.
• Rent prices in Houston, Texas, increased by 5.4 percent.
• Austin, Texas, showed an increase of 5.3 percent in rent prices.
• Rent growth in Las Vegas, Nevada, is at 3.7 percent, which is up from -0.7 percent in December 2012.

Author: Julian Sutherland

Julian Sutherland is an International real estate agent based on the Gold Coast, Queensland, Australia, servicing the Asia Pacific Region.

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