Rental rates are going up across the United States. This is pushing many Americans to open up their savings accounts to afford their monthly payments. For others, it means moving to a smaller, more affordable dwelling. Meanwhile, others are falling behind on payments and risking getting an eviction notice soon.
Rental Rates Increase Nearly 20% On Average
Realtor.com made an analysis of properties with two or fewer bedrooms in the 50 largest US metropolitan areas, It reported that median rental rates surged 19.3% between December 2020 to December 2021. The Miami metro area registered the biggest jump, as rent surged to an average of $2,850. This is a 49.8% increase from the previous year’s rental rates.
Meanwhile, other Florida cities such as Tampa, Orlando, and Jacksonville also registered increases in rental rates of more than 25%. This is also true for Sun Belt cities like San Diego, California, Las Vegas, Nevada, Austin, Texas, and Memphis, Tennessee.
Rising Rental Rates Are Driving High Inflation
Rising rents are helping drive up inflation, which is America’s top economic problem right now. Data from the Labor Department shows that rental rates are slowly rising but are picking up the pace. In fact, rents rose by 0.5% from December 2021 to January this year. While the rate seems small, this represents the biggest increase in 20 years. Consequently, this rate will likely accelerate as inflation remains uncontrolled.
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Now, economists are worried about the impact of rent increases on inflation. The consumer price index factors in jumps in lease rates. The CPI is the basket of goods and services that indicate inflation. Last January, the inflation rate rose to 7.5 compared to prices exactly a year ago. This is the single biggest increase in prices in the last forty years. Rising rent can sustain the high inflation rates since housing costs are one-third of the CPI.
Many Factors Are Contributing to Higher Rental Rates
Experts say that there’s not just one reason why rent is exploding. A nationwide housing shortage, very low rental vacancies and continuous demand for rental units are egging landlords to increase their asking prices. After the initial months of the pandemic, pent-up demand went up. Many young adults who temporarily went home to their parents are now itching to go back to independent living. In fact, US Census Bureau data shows that rental vacancy rates during the fourth quarter of 2021 fell to 5.6%, the lowest since 1984.
Danielle Hale, Realtor.com’s chief economist, said that landlords realized that they have the upper hand. Unit owners, long accustomed to vacant units, suddenly saw demand filling up. This gave landlords “some pricing power because they’re not sitting on empty units that they need to fill.”
Housing Shortage Contributing to Higher Rental Rates
Meanwhile, the number of homes for sale continues to register record lows. The lack of supply against heavy demand is leading to high home prices. The high prices of new homes are forcing some households to hold back on buying and staying as renters.
In addition, construction crews are producing fewer homes as the price of materials and labor hampered their output. With the housing shortage numbers worsening, prices of existing ones for sale are now the subject of bidding wars. Currently, Realtor.com estimates the housing backlog at 5.8 single-family homes. This is a 51% increase compared to the end of 2019.
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Are you experiencing higher rental rates for the house you’re currently renting? For landlords, are you charging more for your units compared to previous years? What is your reason for doing so?
Tell us what you think about the rental market right now. Share your comments below.
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