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Rental Prices Jump 11.6 Percent in 2010

 You would think that with the housing crisis in full swing that there would be so many homes available to rent that rental prices would go down. Seeing the recent numbers from HotPads you would be wrong.

The average rental price in 2010 increased by 11.6% during the year.

That is a huge jump on many levels:

  • For families on a fixed income, that extra rent keeps people from spending their money on other things. 
  • New couples that are saving to buy are seeing  higher rents that push them that much further from their goal.
  • Meanwhile, there are the families that have lost their homes in foreclosure who are in the rental pool that now are paying the increased rent and squeezing their household budgets that much more.

The one good news out the of report is that with housing prices going down and rental prices going down, the Rent-Buy ratio is shrinking. From a rent to buy ratio in 2009 of 15.66 we are now down to a 12.64 at the end of 2010. That means that when families are looking at the cost of buying versus renting they will be more inclined to buy.

As an industry we need buyers to absorb the inventory we are sitting on. Till that day, housing prices will not firm up on a nationwide level and there will be an increased demand for rental units. It is a market and the equilibrium will need to be re-established after the housing boom so all is not lost.

It is just taking longer than any of us expected…

The rental price increase is a factor of uncertainty in the US economic climate, which has forced a transition from a home buying mentality to one more in favor of renting. The growing number of homes lost to foreclosure in 2010 expanded the number of people seeking to rent, creating a renter surplus.

Further, with the US unemployment rate over 9% throughout 2010 (up from 4% in 2006), low risk housing options became more desirable, a trend which may continue in the coming months.

At the same time, HotPads expects to see foreclosed and long standing for sale properties re-enter the market as rentals, which should expand the rental supply, thereby helping ease rent prices. This represents an interesting contrast to the peak of the housing market in 2006, when rental units were being converted into for-sale condos. via Hotpads

7 comments

  1. You definitely pointed out an important point in your statement in regards to people spending more on rent and therefore are limited on how much they can spend on everything else. This is especially important considering the current recession. In order to overturn the economic crisis, there needs to be an increase in spending (which has occurred, albeit gradually). However, with rent prices increasing (and many people, especially college students renting), people have far less money to splurge on entertainment and recreation. As a result, the economy and small businesses suffer.

  2. In hindsight, I suppose, the increase in rental prices isn't too surprising. No one wants to buy, and everyone is waiting for the market to bottom out before they risk tacking on a mortgage (understandably). The only real alternative for most of these people is renting, which sends up demand for rental properties. It's good to see the rent/buy ratio go down, but in the end, something has to be done (like you said) about that surplus of supply. Good post.

  3. You hear so much negative news about the housing market that it's easy for people to fear home ownership, especially those that have been burned by losing their homes to foreclosure. However, this news proves only more that we are in a buyer's market. Those same people who lost their homes to foreclosure could look into foreclosures as a way to obtain a new home for considerably less than they paid for their previous one. There are even stories of people buying their own homes back at auction for a fraction of what they owed the bank on their defaulted mortgage.

    Elyse
    ForeclosureDatabank.com

  4. This 11.6% reported increase in rent is surprising to hear. I own and rent 5 single family homes here in Minneapolis, MN, and I have personally seen the rent prices hold steady or slightly soften across my properties. This, however, can be contributed to the time of year that I've been stuck trying to rerent my properties (i.e. Fall and Winter time). I had to rerent the same property 2 times last year. First time was in December (hardly any interest), and then again in May (and the interest was over-whelming at the same asking price from December). This suggests that the seaonal market here in Minneapolis may be a strong influencer on rent price.

  5. It's a good indication for the Landlords hearing this report of rental increase. But bad indications for the tenants. Because of the growing unemployment, their pockets might be empty and its a disaster if the rent is increase.

  6. Prices go down and rents go up. It's happening all over. Maybe its finally time to buy.

  7. The average rental price in 2010 increased by 11.6% during the year.That is a huge jump on many levels:

    For families on a fixed income, that extra rent keeps people from spending their money on other things.New couples that are saving to buy are seeing higher rents that push them that much further from their goal.Meanwhile, there are the families that have lost their homes in foreclosure who are in the rental pool that now are paying the increased rent and squeezing their household budgets that much more.

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