If you’ve been on the fence between buying a home and renewing your rental lease, 2015 may be a good time to explore the possibilities of homeownership. As supply of rental housing remains limited, U.S. renters can expect to shell out a significant amount more in monthly rent.
In 2014, U.S. renters collectively paid over $441 billion in rent, up nearly 5 percent or $20.6 billion from 2013, according to a Zillow report. Those figures indicate that on average, $26 more per month was spent by every U.S. renter in 2014.
What We Know About Rent from 2013 & 2014
- Annual rent inflation hit 3.5% in November 2014, the highest rent acceleration in six years, according to the Bureau of Labor Statistics.
- The average monthly lease rate is now $1,124, according to data collected by Reis, Inc. This is the highest number since Reis started collecting and analyzing commercial real estate market stats in 1980.
- To consider housing “affordable”, rent should take up no more than 30 percent of a household’s income. Nationally, half of all renters spend more than 30 percent of their income on rent, according to a 2013 report by the Harvard Joint Center for Housing Studies.
- The annual rent inflation of 3.5% from November blew past the total annual consumer inflation of 1.3%. According to Lawrence Yun, National Association of REALTORS® Chief Economist, “Apartment rents are projected to increase 4 percent (more) in 2015.”
Why Rents Are High
Like housing prices and mortgage rates, rental prices mimic trends in the economy. Here are a few reasons why renting is so expensive and why it likely won’t change in 2015:
- Employment rates are on the rise. This is a great indicator for the improving economy; not so much for the rental market. With new employment comes a wave of want-to-be renters who are financially able to leave the nest (aka their parents’ home).
- Limited supply. While developers started the largest number of new rental units in 25 years last year, they have been unable to match the demand of the newly-employed prospective renters and the millions of Americans still renting after losing their homes in the recession. This is creating a “landlord’s market” for 2015.
- Low vacancy rates. According to the National Association of REALTORS®, the national rental vacancy rate dropped below 5 percent in 2014, a low not seen since the first quarter of 1995.
Want to know what it takes to get out of the rental circle this year? Download our free Mortgage 101 Handbook for the basics on home buying and financing. If you are ready to take the next step and get pre-approved, feel free to contact one of our mortgage bankers.