The Red-Hot U.S. Rental Market Begins to Level Off

by 04 Apr 2013

Apartment hunters in the United States found average rent prices higher than expected in the first quarter of 2013. The cost of renting a home could still go up a little more in the near future, but not by much. Landlords have been enjoying several months of rent increases, but this windfall seems on the verge of finishing. 

The collapse of the housing and mortgage markets in the U.S. has been a boon for many landlords and real estate investors in the last few years. The rental market benefited from borrowers who defaulted on their mortgages and also from potential home buyers who postponed their purchase plans for fear of entering a declining housing market. This situation increased the demand for rental properties, which in turn allowed landlords to adjust their monthly prices upward.

The Red-Hot Rental Market 

According to real estate analytics firm Reis Inc., the national vacancy rate for rental properties stood at 4.3 percent at the end of 2012, down from 8 percent at the height of the housing bubble. The average monthly rent payment in the U.S. went up by 3.4 percent since 2012, which is the lowest annual increase of the last few years. 

Although the financial adage of "it is cheaper to buy a home than to rent it" has been a reality for the last years, first-time home buyers have had a hard time qualifying for mortgages. With mortgage interest rates at historic low levels and real estate prices bottoming out, potential homeowners could beat the high rental prices seen in places such as Ventura County in California, where renters are paying $1,419 per month on average. 

The Peak and Stabilization

Many real estate analysts believe that the rental market is at the peak stage. Development of new rental units has increased in the last two years and the U.S. housing market is showing signs of improvement. According to the Wall Street Journal, real estate investment trusts (REITs) that focus on residential leasing did not perform well in the first quarter.

As some renters turn their attention to the recovering housing market, others in regional markets such as New York City will certainly welcome a stabilization. Average rents in the Big Apple are almost at $3,000 per month, and in the lucrative District of Columbia the value of an annual lease contract actually declined on a quarterly basis. As more rental properties are built or purchased from real estate owned (REO) bank portfolios, this stabilization trend is bound to continue.

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