furnished apartment with a view of the city through the window and sunlight illuminating the left wall

The Climbing Cost of Renting

You’re likely aware of how hot the housing market has been for the last couple of years. Low inventory created a housing market squeeze, which resulted in bidding wars and homes selling above the list price. Due to limited options, many buyers are deciding to rent instead, and that’s creating a heightened demand for rentals. Historically low vacancies have propelled rent prices to record levels. In this blog, we’ll look at the climbing cost of renting and provide advice for those looking to rent or buy in this market.

Why is Rent So High?

Regarding current housing trends, the basic economic principle of supply and demand applies. If the inventory is low, the price goes up. The United States has been underproducing homes since the last housing crash. According to Freddie Mac, the shortfall is in the millions. New construction is finally up, but supply chain delays stall the building process, which has been worsened due to the effects of COVID-19. As many borrowers become unable to qualify for a mortgage due to rising interest rates, people are forced to remain in the rental market. Another factor contributing to the rental shortage and the demand is the massive amount of millennials in their late 20s and early 30s ready to move out on their own. All of these factors are driving up rental prices.

Is High Rent Here to Stay?

Unfortunately, there’s no quick and simple solution to the rental market crisis. Experts don’t predict change coming any time soon. In the first quarter of 2022, when the rental market typically cools, apartment occupancy reached an all-time high of 97.6%.

Virginia ranks 19th for highest rent in the nation, which is not too bad from a national point of view, however, this does mean that rents are more elevated than the national average.

Rent Increases

In Virginia, the law states that landlords must give 90 days notice before increasing rent. However, at the disadvantage of the renter, there is no cap on how much a landlord can increase rent if they provide the appropriate notice to do so.

This lack of control means that as prices rise and people become more desperate, landlords can take advantage of this panic to hike rents to prices unfeasible for many.

Buying vs. Renting

It’s no surprise that the rising interest rates are deterring people from buying. Still, for many people, buying can be more cost-effective than renting. If you have the means to make a down payment on a property, building equity and paying a mortgage that fluctuates much less than the rents seen in this market can give a sense of stability and security. While home prices are up 19 percent, rental rates are up over 22 percent. Also, it’s worth considering that with a rented apartment, your payments are not going towards equity or ownership – they’re covering the landlord’s expenses. Although homeownership is the American Dream, it’s not for everyone, and you don’t want to rush the process. Many people enjoy the convenience and flexibility of renting over buying, and that is perfectly alright.

Market Predictions

Rental prices are predicted to eventually plateau, it all depends on the factors of; consumer behaviour, inflation, and the government. The astronomical rate increases over the last year aren’t sustainable, and therefore, will eventually balance out. Even in economic uncertainty, investors see the profit potential in rentals and have begun building new rental communities. So, until there are enough properties to create a surplus or adequate supply of available inventory for renters, prices will remain high. 

A buyer in the position to make a move should not delay buying in hopes of prices falling. Buying now enables you to start building equity immediately. Even while interest rates are increasing, securing your property now is important. Once rates decline in the future, you can always refinance.

What's Your Verdict?

The rental market is competitive. You’ll want to have an excellent credit report, sufficient income, and steady employment history to keep an edge in the game. If you’re open to buying, now is the time to make your move. You could end up saving a lot of money and begin to build equity. The choice is yours, and there’s no wrong answer. However, with the information presented to you in this article, I hope that you are better poised to make that important decision!

Interested in buying soon in coastal Virginia? You’ll need an experienced realtor who knows this market well. Contact me today, and let me help you find your dream home!

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