The good news is the housing market
is coming back with increases in sales prices and lower inventory. The bad news
is some apartment rents are going through the roof.
Rents increased an average of 5.4%
between June 2011 and June 2012, according to new findings by real estate
website Trulia, and in cities such as San Francisco, Boston, Denver and
Miami, rental prices have jumped more than 10% over the past year.
A Reuters article reports
that recent data from real estate research firm Reis shows rents increasing at
the highest rate since 2007. The average asking rent is now $1,091 per month
nationwide. In the most expensive market, New York City, that average is
$2,935.
Ouch.
Today, we’ll take a look at some of
the factors driving rents upward, and suggestions for how to handle this trend:
Why
Rents Are Rising
Right now, there’s plenty of demand
for rentals, and not enough vacancies. Here are three big reasons why:
- The flood of foreclosures in recent years has forced a number of former homeowners into the rental market.
- An easing employment market has enabled people who may have been living with family or roommates to seek out places of their own.
- Renters who may be thinking of buying a home are biding their time because of the volatile state of the economy and the fact that lenders are pickier about who qualifies for a mortgage these days.
While there’s all this demand, the
supply of apartments hasn’t kept up. According to Reis, only about 38,000 new
apartment units were built in 2011, the smallest number in more than 30 years.
And the current apartment vacancy rate is just 4.7%, the lowest it’s been since
2001.
Should
You Buy?
While rent prices are shooting up,
housing price increases have been relatively flat until recently. As a result, it
might be tempting to stop ponying up cash to a landlord and invest in a home of
your own. Consider these factors before going house-hunting:
- Are you planning to keep the house for five years or more? When factoring in closing costs and real estate fees, that’s about how long it takes for buying to really pay off, according to this interactive New York Times graphic.
- Is your job situation stable? Of course, nothing is certain, but you should be sure you are established in your current position and confident you have the skills, experience and connections to find another job so you can always keep making mortgage payments.
- What are the housing prices in your area like? Trulia uses a formula to determine where buying makes the most financial sense. They divide the typical house price in an area by the typical yearly rental price to get a ratio. If this number is under 15, they consider buying to be less expensive than renting. As of March, 98 of the 100 markets they analyzed had low price-to-rent ratios; San Francisco and Honolulu were the exceptions. And although the greater New York/New Jersey market had a low price-to-rent ratio, it’s still cheaper to rent than to buy in Manhattan.
How
to Manage Higher Rents
If buying is not for you at the
moment, here are some ways to deal with rising rents:
Rent
To Own
For many, the rent-to-own home may be
the best option. Also called a lease-to-own house, the process works similarly
to a car lease: Renters pay a certain amount each month to live in the house,
and at the end of a set period -- generally within three years -- they have the
option to buy the house. Each month of rent they pay is income for the seller,
while a portion of it goes toward a down payment to eventually buy the home.
Rent
Within Your Reach
There’s nothing worse than trying to
pay for more home than you can afford. And in general, your rent should never
be more than 30% of your net take-home pay. Why? Because it saps your ability
to meet your other financial goals, like saving for retirement and building an
emergency fund. Also, the stress of coming up short—or just squeaking by each
month—can’t be overestimated. Do a quick calculation to see whether your
current housing falls within these bounds. If not, you might want to seriously
consider the next point—your ability to negotiate down your rent—or an option
to seek out a cheaper living space.
Negotiate
With Your Landlord
If you receive a rent increase you
feel is unreasonable, sharpen your negotiating skills. If you pay your rent on time, don’t have
loud parties and don’t hassle the landlord every time you find a chip in the
paint, he or she is going to be more likely to want you to stay. Offer to agree
to a longer lease term to keep rent increases down. Try to find comparable
rentals with lower rents to politely bring to your landlord’s attention.
Adjust
Your Budget
Your essential expenses —what you pay for basics like rent,
food, utilities and commuting should take up no more than half your take-home
pay. So if your rent goes up, you need to reduce what you spend on the other
fundamentals. For instance, walking, biking or carpooling to work could trim
transportation expenses; remembering to bring your lunch with you to work more often
could significantly trim your food costs. If rent is still breaking your budget
after you’ve overhauled your essential spending, you might consider finding a
roommate to lower expenses.
Cut
Your Costs
After adjusting your essential
expenses, dig deeper and figure out what other costs you can cut. Daily outdoor
runs might be a nice change of pace from a gym membership. A handmade scrapbook
for a friend’s birthday could be a much more thoughtful and lasting gift than
just another scarf or handbag.
If rents keep going up—and right
now, that’s the forecast—more people may decide to buy, reducing demand and
resetting rental prices. In the meantime, stay on track with your financial
goals by finding ways to manage this big monthly expense.
No comments:
Post a Comment