Cracking the Code on Rent Prices: What Makes Them Rise and Fall?
Many people struggle to afford rent and wonder when rent prices might come down or what could cause them to come down. In addition, investors wonder if they need to factor in the risk that rent prices drop and affect their overall return. They want to be ready and best prepared for anything that comes their way. The truth is rent prices can drop for several reasons, and there are some key drivers everyone should pay attention to.
All these reasons form from the bigger picture of supply and demand. Most people understand that, but to be ready, we must dive into what could cause the demand and the supply to change. Right now, rents have increased at some of the highest rates ever seen year-over-year. Rents have become so high that they have priced out much of the market. In some cities, rent cannot go much higher because no one can afford it. This could cause demand to decrease if they continue at this rapid pace or remain stagnant if they start to slow. The other thing you want to pay attention to that would affect demand is job loss or financial hardship. If the job cuts continue, more people might be forced to move out, get a roommate, or move back in with their parents.
What would affect the supply? Almost 1 million apartment units are currently under construction, mainly in large cities like Dallas, Austin, and Atlanta. RealPage says this is the highest number of units under construction on record. With the increased supply, landlords will compete more to fill their units. Another way supply could be increased is by individuals renting their second homes. Over the past couple of years, many people bought more than just a primary residence, and if financial conditions begin to get tight, many will try to rent the extra home before selling it entirely. This would add to the supply of rentals as well.
Another factor that would affect rent prices is a decline in housing prices. If housing prices decline, investors can generate a return using a lower rent price. This would allow them to price out other landlords, thus forcing prices downward to avoid vacancies. Another reason rents would decline is that more individuals would be inclined to purchase homes since they are more affordable. This would drop the demand for the rental market.
Like any financial decision that includes price, the answer always refers to supply and demand. Pay attention to market trends and data to make the wisest decisions. For information from me, always feel free to reach out.
Kyle Camerlinck
561-371-5143
Kyle@taiter.com
