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Renters Should Be Wary as Rents Are Predicted to Rise Faster than Inflation

Posted by Hannah Raissa Marfil on Dec 24, 2015 03:08 PM EST
Vacancy Rate For U.S. Apartments Reaches Highest Rate In 20 Years more big
SAN FRANCISCO - JULY 08: A sign advertising apartments for rent is displayed in front of an apartment complex July 8, 2009 in San Francisco, California. As the economy continues to falter, vacancy rates for U.S. apartments have spiked to a twenty two year high of 7.5 percent, just short of the record high of 7.8 percent set in 1986. (Photo : Justin Sullivan/Getty Images)

Renters should be wary for 2016 as rents are predicted to rise and rise quickly. According to a report by CNN Money, "Next year, experts predict rents will rise faster than inflation, increasing around 3 percent to 5 percent on a national level."

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The same publication reported, "Rising mortgage rates could also push rents higher, while the Federal Reserve is expected to start raising interest rates for the first time in nine years, which could keep people in the rental market longer." Also, the increased borrowing costs are boxing out potential buyers and surging rents even higher.

According to Devin O'Brien, head of strategic marketing at rental platform Zumper, prices in the country's hottest rental markets, like San Francisco, Boston and New York City, are set to plateau.

O'Brien also pointed out how price gains in Oakland will outpace those in San Francisco in 2016, and rents in Cambridge will see a major rise as renters seek a cheaper alternative to Boston. And strong rental growth is expected in Austin, Dallas, Houston and even Miami.

Meanwhile, while new construction will bring new rental units to the market, it isn't likely to keep up with growing demand, and vacancy rates are so low in many places that it'll take at least a year for supply to catch up to demand, as reported by The Coolingwood Group.

In fact, the region is already in a rental affordability crisis and 2016 isn't going to let up. In the years since the financial crisis, vacancy rates plummeted as demand for renting rose, sending rents soaring, said Svenja Gudell, Chief Economist at Zillow.

Moreover, the new inventory has a tendency to be high-end, which won't be much help in terms of rental affordability. Also, paying more toward monthly rent will make it difficult for renters to save for a down payment and in due course become a homeowner, which could force people to stay in the rental market longer.

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