Soaring Home Prices Affecting Rental Trends

Soaring Home Prices Affecting Rental Trends

August 6, 2013 | Real Estate News, Rental Trends and Real Estate News

The housing market and rental trends go hand-in-hand. In recent real estate news, home prices are soaring–experiencing their largest year-over-year increase since March 2006, which was near the peak of the housing bubble. As the real estate market gains momentum, the rental trend of many Americans choosing to rent instead of buy will likely continue.

The S&P/Case-Shiller Home Price Index, which tracks property values, shot up 12.2 percent between May 2012 and May 2013. While this is shy of the 12.4 percent projected by economists, it is still the biggest annual gain in housing prices that has been seen since before the housing bubble burst.

The gain in home prices is likely the result of a number of factors, including low borrowing costs and a short supply of houses on the market. As the demand for homes increases, housing prices continue to increase. And let’s face it–no one wants to pay more than they have to!

While all 20 metropolitan areas tracked by the S&P/Case-Shiller Home Price Index showed a jump in housing prices over the last year, some were much greater than others. San Francisco led the way with an increase of 24.4 percent, followed by Las Vegas (23.3 percent), Phoenix (20.6 percent), Atlanta (20.1 percent), and Los Angeles (19.2 percent).

One of the underlying reasons that there is such a scarcity of homes for sale is that the demand simply hasn’t been there. After the housing bubble burst in 2008, many Americans who were wary of buying homes chose to rent instead. This, in turn, drove rental vacancy rates to their lowest level since the 1980s–it was a renting frenzy!

However, with the economy on the upswing, people are once again buying homes (as evidenced by the jump in housing prices). This will likely have an effect on rental apartments, particularly in metropolitan areas like San Francisco, where renting is still much less expensive than buying.

While it was a high rate of unemployment and shortage of homes for sale that made renting so appealing to many Americans over the last few years, an improving economy means higher mortgage rates, which may persuade many renters to continue to put off home buying.

Economists project that the upward momentum in home prices will continue. However, experts have expressed concern that the rapid price gains mark the beginning of another housing bubble and cannot be sustained. For those who are still wary of the housing market, renting appears to continue to be the safer choice (not to mention the fact that renters aren’t responsible for shoveling or mowing the lawn–it’s a win-win).

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