US rent prices reach near-record high in August, says report.
National Rent Prices Soar to Near-Record High as Demand Outpaces Supply
In August, national rent prices reached a nearly all-time high, driven by a shortage of available properties to meet the growing demand, according to a recent report from Rent. The median rent price rose by 0.71 percent month over month, reaching $2,052, just $2 shy of last year’s record of $2,054. This increase surpassed the previous month’s growth rate of 0.41 percent.
Comparatively, data from the Mortgage Bankers Association (MBA) revealed that the median mortgage payment for a single-family residential property was $2,161 in July.
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Despite the significant increase, the growth rate fell below the average for this year. Since February 2023, monthly rent prices have typically risen by 0.97 percent. However, rents have still climbed by 6 percent since hitting a low of $1,937 in February, resulting in an additional $115 burden for tenants each month.
“We’ve been observing a steady upward trend in prices since February,” explained John Leckie, a research analyst for Rent, in an interview with The Epoch Times.
Leckie also noted that the current trends indicate a substantial drop in demand and an increase in supply.
“Both of these factors are working together to keep rent growth below its normal rate,” he added.
On a year-over-year basis, rent prices experienced a modest decline of 0.06 percent.
At the state level, four states saw double-digit increases in rent prices compared to the previous year: Mississippi (19.3 percent), Iowa (14.13 percent), North Dakota (12 percent), and South Dakota (11.65 percent). Overall, ten states reported gains.
This surge in prices can be attributed to the influx of people moving to these regions, as they are popular destinations for households relocating from the northeast and west coast.
“When you have a high demand and limited supply, prices naturally rise,” explained Leckie.
State of the US Rental Market
Over the past few years, housing costs for both homebuyers and renters in the United States have skyrocketed.
According to the Bureau of Labor Statistics, the shelter index within the Consumer Price Index (CPI) remained above 7 percent and increased by 0.3 percent from July to August. The rent for primary residences rose by nearly 8 percent and climbed 0.5 percent month over month.
Experts in the industry believe that relief may be on the horizon with the construction of 1.2 million new rental units in the past three years.
A report from Rent Cafe, using data compiled by Yardi Matrix, projected that an additional one million new rentals will be completed by 2025.
“Developers are working tirelessly to finish projects that were approved during the peak of the pandemic to meet the demand from renters seeking more apartments as hybrid work arrangements continue,” stated the report.
However, rental supply growth may slow down once the current wave of projects is completed due to stricter bank lending standards and rising costs of labor, land, and materials, warned Doug Ressler, a senior analyst and manager of business intelligence at Yardi Matrix.
“Construction debt starts at 8 percent interest, and most banks only lend 60 percent or less of the total project cost. Junior construction debt has even higher interest rates, reaching the mid-teens,” Ressler explained. “This financing structure can make it challenging for companies to initiate new construction projects unless they already have a substantial amount of capital.”
Americans Spending More of Income on Rent
A recent study revealed that a record number of renters are allocating at least one-third of their income towards rent.
In July, Harvard’s Joint Center for Housing Studies published The State of the Nation’s Housing 2023 report, which found that nearly 22 million households spend more than 30 percent of their pretax income on rent. Additionally, almost 12 million households are spending over half of their earnings on housing.
The authors of the report noted that the trend of renter households facing financial burdens had been steadily declining over the past decade. However, the COVID-19 pandemic reversed this progress, disproportionately affecting low-income households.
“Housing costs remain significantly higher than pre-pandemic levels due to substantial increases in recent years,” said Daniel McCue, senior research associate at the Joint Center.
Housing experts generally recommend that tenants spend less than 30 percent of their income on rent. However, achieving homeownership has become increasingly challenging due to affordability issues. The average 30-year fixed-rate mortgage is above 7 percent, while the median sales price of homes sold in the second quarter exceeded $416,000.
How have population growth, increased migration, and the ongoing housing shortage contributed to the highly competitive rental market?
Wth is still struggling to keep up with demand. The combination of population growth, increased migration, and the ongoing housing shortage has created a highly competitive rental market.
The impact of these market dynamics can be seen in major cities and metropolitan areas across the country. Rent prices in popular cities such as San Francisco, New York City, and Los Angeles have remained exorbitantly high, making it increasingly difficult for renters to find affordable housing options.
In fact, a recent study by Zillow found that the average renter in the United States would need to allocate nearly 30% of their income towards rent, surpassing the recommended 30% threshold for housing affordability.
This has led to a rise in housing insecurity and a growing population of rent-burdened individuals and families. Many renters are forced to make difficult choices, sacrificing other essential needs to keep a roof over their heads.
The impact of soaring rent prices is not limited to individuals and families. It also has significant implications for the overall economy. As more households struggle to afford their rent, they have less disposable income to spend on other goods and services, which can hinder economic growth.
Furthermore, the lack of affordable rental options can have negative effects on workforce mobility. Individuals who are unable to find affordable housing in certain areas may be deterred from pursuing job opportunities in those locations, leading to labor market inefficiencies and potential talent shortages.
The current state of the rental market highlights the need for comprehensive and sustainable solutions to address the housing crisis. Policies and initiatives that promote the construction of affordable housing, increase housing subsidies, and protect renters from unfair practices are crucial.
Efforts should also be made to encourage diverse housing options, including mixed-income developments and innovative co-living arrangements, to provide affordable alternatives to traditional renting.
Ultimately, addressing the soaring rent prices and the underlying housing shortage requires a multifaceted approach that involves collaboration between policymakers, developers, and community stakeholders. By prioritizing affordable housing as a key societal need, we can work towards creating a more equitable and sustainable rental market for all.
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