Rents across America continue to rise and are rising at a pace that we have not seen in centuries.
As rents continue to rise and housing becomes less affordable, we are beginning to see the middle being forced into lower income areas.
For rents to be considered affordable, you monthly rents is supposed to take up no more than 30% of your household income.
For example, if you were planning on renting a unit for $1,050 (average rental price in Syracuse NY) then you would have to be bringing in $3,500 per month.
Luckily for renters in Syracuse NY, these margins are not as extreme and you can live a good life for a reasonable price.
According to a Harvard study " Half of all renters are spending more than 30% of their income on housing"
The more money that Americans are spending on housing (renting), the less money they will have to save up for a down payment on a house and less money they will be putting back into the economy.
In 2015, rents increased by 4.6% across America which is the largest gain since before the recession.
Rents have continued to rise since the last recession and we are reaching a point where housing is and will be very difficult to afford.
Why Do Rents Prices Fluctuate | Syracuse Real Estate
As we stated rents have continued to rise over the past 5-6 years, but what is the reason that these rental prices rise? There are several contributors to the rising in rental prices but some of the key factors to look at are:
1) Lack of Supply / Increased Demand - This is basic economics. When there is a lack of supply or a lack of housing for people to live, landlords now have control over the prices. With less rooms available, there becomes a much larger demand, which can cause the price of these units to rise. So in order to balance out the supply side of things, you will see developers building more important apartment buildings and housing units. If there is not a very high demand in this area (high population growth, high job growth, purchasing power), an increased supply will balance out rental rates.
2) Evictions From The Past Recession- This may sound crazy, but the past recession is a big determinant of the demand for renters in some areas. More than 7 million homeowners were forced to foreclose on their mortgages and took a large credit hit along the way. The majority of these homeowners that were forced to foreclose, have now become renters. The recession has also put a bad taste in the mouth of many millennials, so they are taking a much more cautious approach towards home ownership. So as a result more people are renting than buying, which increased the demand for rental units, which forces an upward rise in rental prices.
According to CNBC "single family rental homes made up of about 9% of the US housing stock before the recession, now they are up to about 14% and still rising". Also since 2006, the number of single family rentals has increased around 35% due to the conditions we have already touched on.
3) Tough Lending Standards - Since the past recession, banks and lenders have tightened their requirements, which has resulted in less buyers being able to qualify for mortgages. After the housing burst, regulations were tighter than we have seen in years. Banks and lenders are requiring lower income to debt ratios and higher credit scores. However, as the years have passed, we are now seeing lenders loosen some of these requirements to allow a more affordable avenue to get into homes. Some banks, such as Bank of America are offering 3% down mortgages, in a hope more first time home buyers will begin to enter the market.
Conclusion
So now that we understand why rent prices rise, the next question we need to ask is how long will these rent increases last? How long will it take for the supply to catch up with the demand and will renters begin to start buying homes again. These are all questions that will be answered in time but with the loosening of lender requirements, you may begin to see more first time home buyers enter the market. Especially in a location like Syracuse NY, where if you have found a way to save up for a down payment, it can be less expensive to own compared to renting.
If you are a landlord, tenant or developer let us know in the comment section below how these rent increases have effected you.
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