Despite the fact that most mainstream economists dismiss any sort of uptick in price inflation, the amount of rent that Americans paid this year shot up nearly $21 billion to a grand total of $441 billion.
According to a new report from Zillow Inc., a Seattle-based real estate information service, fewer Americans purchased a home and landlords increased their leasing charges. The report discovered that the number of rental households rose by 770,000, or about two percent. This isn’t something new.
Since the economic collapse a few years ago, the demand for rental housing has gone through the roof, particularly with millions of homes foreclosed because of the subprime mortgage meltdown. In addition, there have been greater efforts to tighten mortgage lending standards, though in the past year or two those standards have slightly diminished.
The lack of millennials acquiring property has also been another significant factor. However, real estate experts say that trend will likely reverse once rents continue to shoot upwards and the economy gradually improves. Millennials have been straddled with a weak labor market, enormous debt loads and a volatile housing market.
It is projected that rent will rise by 3.5 percent next year, which is higher than the projected home value increase of 2.5 percent. Homeownership remains at its lowest level since 1995.
“Spending a lot for rent means it’s hard to save for retirement or a down payment and makes it more difficult to move from being a renter to being a homeowner,” said Skylar Olsen, senior economist at Zillow, in an interview with Bloomberg News. “At the same time, it gives greater incentives to start seeking out an opportunity to be a homeowner.”
The top five cities to see the greatest rental prices in the United States were New York-Northern New Jersey ($50 billion; 3.6 percent), Los Angeles ($34.2 billion; 5.3 percent), Chicago ($14.3 billion; 7.4 percent), Dallas-Fort Worth ($10 billion; 6.2 percent) and Houston ($8.8 billion; 7.2 percent).
Other reports have identified the New York area as continuing to have some of the highest rental prices in the country. Last month, a report published by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate found that the median monthly apartment rent in Manhattan was $3,225 in November, up 2.6 percent from a year earlier. Brooklyn now faces monthly median rent of $2,948, while Queens dropped to $2,525.
Meanwhile, the cheapest cumulative 2014 rents were situated in Birmingham, Alabama ($1 billion), Louisville, Kentucky ($1.2 billion) and Buffalo, New York ($1.2 billion).
“Over the past 14 years, rents have grown at twice the pace of income due to weak income growth, burgeoning rental demand, and insufficient growth in the supply of rental housing,” said Zillow Chief Economist Stan Humphries in a statement. “This has created real opportunities for rental housing owners and investors, but has also been a bitter pill to swallow for tenants, particularly those on an entry-level salary and those would-be buyers struggling to save for a down payment on a home of their own.”
With mortgage agencies Fannie Mae and Freddie Mac decreasing the minimum down payment to three percent, the U.S. could see more home purchases over the next couple of years. However, it has been warned that these three percent down payment mortgages come with high levels of default.
