In recent times, the possibility of recession is becoming very difficult to ignore. This is largely due to the massive increase in prices across various sectors of the global economy. For this reason, this is a good time to keep an eye on rent prices, which are known to be constantly changing. The volatility implies that the high level of inflation only promises to raise rent prices higher.
For this reason, it is only natural for many to wonder: will rent prices ever go down? Even if they do, when will that happen? After all, inflation – as well as other events across the globe – has plunged the whole world into uncertainty. As this threatens to rip households apart, you should learn why rent prices have become so high and if they will go down soon. Keep reading to learn more facts beyond the obvious!
What Are The Average Rent Prices In The United States?
The costs of renting houses in the United States range from one state to another. In 2020, the average rent price in the country was about $1,100. However, in recent times, these prices have risen dramatically. By taking a one-bedroom unit in the largest cities into account, we have the following:
- New York, NY – $3,260
- San Francisco, CA – $2,850
- Boston, MA – $2,720
- San Jose, CA – $2,390
- Miami, FL – $2,340
As you can see, based on the highest average rent prices in the United States, these aforementioned cities have rental rates that are much higher than the US average. With this in mind, it is important to understand the reasons behind the high rent prices. Keep reading to learn more!
Why Rent Prices Are High
In recent times, rent prices have become very high. There are several factors that have contributed to this rise. In this section, we will take a look at some of them.
Certain Demographics Are Growing In Demand
Basic economic theory states that when the demand for certain goods and services increases, the prices will also rise. As a result, rental prices will only increase when the demand for rental housing rises for specific demographics. Take, for instance, people in their 20s or early 30s who will prefer to embrace house rentals, rather than buying their own homes.
After all, this is to be expected from individuals that are more focused on pursuing their careers than building and maintaining a home. Besides this, people that are reaching the age of retirement are likely not to be able to maintain a large house. For this reason, it shouldn’t be a surprise to find many of them looking at lower-maintenance properties.
Higher Home Prices
It is safe to affirm that rent prices will rise when home prices increase as well. This is because, for most landlords, their rental rates represent a little fraction of the overall value of their house. Take, for instance, a house that is worth $90,000. The landlord might be willing to charge just 1% of this value, which is $900 per month.
When the value of the house increases to, let’s say, $110,000. This rental price will inevitably increase by the same rate to $1,100 per month. As the prices of houses increase, so will the rental price.
Lower Rental Home Inventory
Prospective homebuyers are not the only ones to be concerned about low home inventory. Indeed, this is also a major issue for potential renters. When there is no plethora of rental home options, the landlords might take advantage of this to set prices, based on their own preferred monthly rates. For this reason, they might decide to raise the price very high.
When the available housing inventory is not much and only a few people are leaving their rentals, this will ensure that landlords can raise their rental rates for the present tenants since home availability in other places is low.
Can Rent Prices Ever Go Down? If So, When?
It is no strange news that there is a dramatic increase in rental rates in many states across the United States. For this reason, many people often wonder: Can rent prices ever go down? However, this is a difficult question to answer.
The housing market has been experiencing major swings in direction over the years. However, the growing inflation has only promised to keep prices on the rise. This has created a domino effect across major industries in the country – and indeed all over the world – including the housing market.
As the whole world continues to face the consequences of the Russia-Ukraine war, as well as other major events across the globe, it is difficult to predict what will happen to house prices. However, certain factors can be discussed.
Supply meeting up with demand
So far, it is no stretch to suggest that the demand for rental houses surpasses the supply. As previously discussed, an imbalance in supply and demand will affect prices. In this case, higher demand threatens to keep prices higher.
If the supply of rental houses can meet up with the demand, then rentals can enjoy reduced rental rates presently. Besides this, there must be a plan to build more rental houses.
How much are people willing to purchase houses?
As rent prices rise massively, will people be more inclined to buy houses rather than rent? It is no secret that everyone wishes to own their house. Yet, the current market makes this harder. For this reason, it is more likely that more value is derived from renting than purchasing at high prices, making it the best option for many people for now.
Renters and home investors must ensure that they keep up with the price trends. After all, these are uncertain periods and the potent threats of inflation cannot be ignored. Price hikes have been felt in all sectors of the economy across the globe. For this reason, all renters – prospective and existing – must find ways to learn more about the housing market as they try to make the best choice for their future.