Rental Demand -- and Prices -- Climb Back Toward Peak


rentalWhile everyone is wringing their hands over the price of gas this summer, few have noticed another budget-buster looming around the corner: rising rents.

Thanks to the recession and housing foreclosure crisis, there are 3 percent fewer homeowners in America, according to Census data. Where did those folks go? While a few moved in with friends and relatives, the bulk became renters. And as we learned in Economics 101: Prices are determined based on supply and demand.

Nobody has built more rental units, although some houses that were once owner-occupied now are leased. But the evidence is clear: Rents have ticked up as homeownership declines.

BusinessWeek reports that in 2010, rents nationwide rose an average 4.2 percent. By contrast -- and proof of what a difference a year can make in the housing market -- in 2009, landlords had to offer discounts to attract tenants, and effective rents (what tenants actually paid) fell 5.9 percent. According to AXIOMetrics, an apartment market research firm in Dallas, last year was one of the best periods for landlords over the past 15 years and may mark a turning point for what lies ahead for renters. In a nutshell, higher monthly rents.

You can already see the evidence in Manhattan, where the vacancy rate of 0.69 percent is the lowest in five years and rents are just slightly off their 2007 peak. How expensive are Manhattan rents? The average apartment cost $3,353 a month in May 2011, according to Citi Habitats. In its monthly rental market report, the residential brokerage found that rents were steadily increasing, the vacancy rate continues to fall and "conditions are fast approaching those found during the market's pre-recession peak."

"Apartment seekers need to be aware that conditions are 180 degrees from where they were last year," said Gary Malin, president of Citi Habitats. He described competition for apartments as "fierce."

But it's a story not confined to Manhattan. AXIOmetrics says that U.S. apartment rents climbed 5 percent in the 12 months ending in April. Nationally speaking, Northern California saw the highest jump in rents, according to AXIOmetrics. In San Jose, they rose 11 percent from April 2010 to April 2011. Step back a little further and the hike is even more dramatic. San Jose's rents hit bottom in December 2009 at an average of $1,573. Since then, rents have gone up 17.4 percent, or $274 per month. That's in just 16 months.

Oddly, rents used to track housing prices: When the price of homes went up, rents in the community followed suit. But since the recession started, noted AXIOmetrics' Jay Denton, just the opposite pattern is being seen: The places where home values have nosedived have seen rents spike.

And we can't just blame the recession. Natural disasters also play a role in rising rents. After Hurricane Katrina devastated New Orleans, nearby Houston saw a spike in rents of 9.2 percent. The average effective rent went from $747 in the second quarter of 2005 to $816 in the fourth quarter. Occupancy rates went from 89.7 percent to 94.3 percent over the same period.

There have been more than 3 million foreclosed homes since the start of 2008, according to RealtyTrac Inc., and at least 3 million more are expected by 2015, says Census data analyzed by Harvard's Joint Center for Housing Studies and The Associated Press. The rate of homeownership has fallen to 66.4 percent, the lowest since 1998, according to the Census Bureau. Most of those former homeowners have joined the ranks of renters.

And renters aren't moving into first homes with the same frequency they once did. AvalonBay Communities Inc., the second-largest publicly traded owner of U.S. apartments with more than 50,000 units, says that only 12 percent of its tenants moved out in the first quarter of this year to buy a home of their own -- the lowest level since they began tracking this information. And with fewer vacancies came higher rents. By the way, this suits the company just fine. It saw its first-quarter revenues increase 18 percent to $93.5 million from a year earlier -- thanks to higher rents.

These AOL Real Estate guides can help, whether you're in the market to buy, rent or sell:

More on AOL Real Estate:
Find out how to
calculate mortgage payments.
Find
homes for sale in your area.
Find
foreclosures in your area.
Get
property tax help from our experts.

Add a Comment

*0 / 3000 Character Maximum

22 Comments

Filter by:
My Six Percent

My Six Percent is a web based platform that guides users step by step through the home buying / selling process, similar to what Turbo Tax does with tax preparation. We are free; organized; and intuitive. Stop by and check us out if you're considering buying / selling.

My Six Percent - Because You Don't Need an Agent
www.mysixpercent.com

July 17 2011 at 8:47 AM Report abuse rate up rate down Reply
aqwetfgar

www'styshops"com
"
Finally (48 hours) time limit to buy.

A F, A r m a i n i,e d h a r d y, l a c o s t e,t s h i r t s -12

A I R M A X 2 0 1 1,s h o e s -35

A F,E D H A R D Y , b i k i n i -17

C O A C H B A G,C H A N E L B A G-35

O a k e y , c o a c h , g u c c i , A r m a i n i,s u n g l as s -15

Tips (48 hours after the special product is invalid)

www'styshops"com

June 18 2011 at 3:41 AM Report abuse rate up rate down Reply
Andy Wright

Good Article

June 18 2011 at 2:29 AM Report abuse rate up rate down Reply
wesdik

This Country has DEFINATELY gone to hell in a hand basket, and what scares the h--l out of me is it doesn't appear to be any light at the end of the tunnel...GOD HELP US ALL!!!

June 17 2011 at 6:54 PM Report abuse +2 rate up rate down Reply
thudula

President OBAMA has a SECTION 8 Housing Program for Private Apartment Buildings. View the Details at (www.whitehouse.gov) Convert your duplex or small apartment building into SECTION 8 Housing. REGISTER TO VOTE and SPLIT YOUR VOTE. 22 MIllion USA CITIZENS cannot find work. Join(www.numbersusa.org)

June 17 2011 at 6:31 PM Report abuse -1 rate up rate down Reply
Annie

Maybe with so many people having to rent there will be less of the prejudice against renters over homeowners. At least renters didn't cause a housing crisis by buying houses they couldn't afford and paying ridiculous prices for houses worth far less.
Many of the houses that are dropping in price weren't worth the sale price to begin with. You don't buy a house to make a profit. You buy a house to make it a home and have something that is yours.
However, some people, including me, do better renting. Contrary to the President and a lot of other people, not everyone needs to own a house. A good mix of rental units and home ownership allows for the ebb and flow of people in and out of a community.

June 17 2011 at 6:25 PM Report abuse rate up rate down Reply
1 reply to Annie's comment
tbbikerdad

Annie , you are right about rediculous price of housing , BUT YOU ARE WRONG ABOUT THE CAUSE OF THE HOUSING '' CRISIS '' . .................AMERICAN UN ..EMPLOYMENT , ...IS THE TRUE CAUSE OF THE HOUSING DISASTER ......... I WAS PAYING MY BILLS .....TILL I LOST MY JOB . .........YOU ARE ALSO WRONG ABOUT MOTIVE ...... ANY HOUSE CAN BECOME A HOME . ...WHEN YOU BUY A HOME , WHEN YOU DECIDE TO UPGRADE , YOU ARE NOT GOING TO GIVE THE OLD ONE AWAY . IT SHOULD HOPEFUL HELP OFFSET THE NEW BILL ..................THE TRUE REASON FOR HOME FORCLOSURES IS ......................U N EMPLOYMENT ..................CORPORATE AMERICA FILED BANKRUPTCY AND TOOK THE MONEY AND RAN . SENT EVERYONE ELSE TO THE UNEMPLOYMENT LINE . ........................... CORPORATE BANKRUPTCY MEANS ,....THEY DO NOT HAVE TO PAY THEIR BILLS . OUR CONSTITUTION PROTECTS CORPORATE AMERICA IN THIS . THE JUDGE SIGNED IT ...............My name is T i m

June 17 2011 at 7:10 PM Report abuse -1 rate up rate down Reply
1 reply to tbbikerdad's comment
dirgraphic

See Fannie and Freddie to fill in the blanks. Number one numbskull: Barney Frank.

June 17 2011 at 8:19 PM Report abuse rate up rate down
Burberry

Spelling lesson: You spell losing, LOSING - it's not loosing. Go to www.dictionary.com and listen to the difference between loosing and losing. You loose the chains that bind you, but if you want to be healthy you lose weight. Hope that helps! I see the same mistake constantly! :(

June 17 2011 at 5:42 PM Report abuse +2 rate up rate down Reply
2 replies to Burberry's comment
timbrands

No you don't "loose" the chains that bind you, you lose them. The chains on your tires may be loose if they are not put on correctly.
There is a "loosing" a term I've never used.
http://www.thefreedictionary.com/loosing
3. To cast loose; detach: hikers loosing their packs at camp.
I would have said "loosened" which is also correct.

June 17 2011 at 6:57 PM Report abuse rate up rate down Reply
1 reply to timbrands's comment
Bones Rhodes

Uh, no Tim, you lose: Burberry is entirely correct and you, apparently haven't spent much time in a church or you would be familiar with the terminology. It is a paraphrasing of Acts 16: 26 " ------ and immediately all the doors were opened and everyone's chains were loosed. "

It is an archaic use which means to unfasten: to "loose one's bonds" ( or chains ) means to make them loose so that you can get free of them. In the example from Acts ( which is where its popular use originated - Google "loose the chains that bind you" and see how many religious sites you get ) nobody "lost" their chains - they knew exactly where they were : they were on the floor having become "loose" and letting them free. You were actually barking at the correct answer in your reply when you hit upon the "loosing" definition.

June 18 2011 at 1:15 AM Report abuse rate up rate down
slinger 53

so dat (that) makes U (YOU) smarter that than them.

June 17 2011 at 7:15 PM Report abuse rate up rate down Reply
1 reply to slinger 53's comment
Bones Rhodes

--wouldn't that ( or "dat" ) be ( or "b") : "smarter dat dan dem" ?

June 18 2011 at 1:17 AM Report abuse rate up rate down
wdhauka

This is just another example of the have's taking advantage of the have not's . Most people or company's that own investment property's complain about this and that but the truth is that most renters are good tenants ,and they are the one's that are paying for the taxes and mortgage's on these property's I have friends that have a LLC investment company's that just purchases more property's and assets each year so it appears they are loosing money, that way they don't have to pay taxes on their investment income.

June 17 2011 at 5:32 PM Report abuse rate up rate down Reply
mizbaa

I'm renting by choice.After 25 years in my home and a divorce,it was cheaper for me to rent than try to maintain a home. I tried living in an apartment but that did not work
for me. Foune a cute little 2 bedroom home and Iv'e been therefor seven years, always paid rent on time never once late.The area is great to live in, and I am well known and respected in the neighborhood. I am known for staying out of other people's business. Since my husband are both minister's of the gospel we don't have time for foolishness. Since I was once a homeowner I'm ok with renting.

June 17 2011 at 5:16 PM Report abuse -1 rate up rate down Reply
isabel7830

I have 12 properties in Miami Dade County. I LOVE being a landlord. I have not had any issues with any of my tenants. They call with any issue, I take care of it within 48 hours. And I never raise the rent. In return..I have very happy tenants that always pay and give me no headaches at all. Landlord/tenant relationships have to be fair on both sides. I think for the most part if you choose your tenants carefully, give them a good deal, and take care of their reasonable needs that you will have a great relationship.

June 17 2011 at 5:04 PM Report abuse +3 rate up rate down Reply