Interest Rates Are Still Low, But Rents Are Climbing

At last week’s meeting of the Federal Reserve it was determined that interest rates are not slated to start climbing this month, so that’s good news for home buyers. However, in the big picture it’s not good news for people who lease their homes.


Rising rental costs and low mortgage interest rates are the obvious reasons home buyers are motivated now. But renters who are forced to deal with rising monthly lease payments find it increasingly difficult to build their savings.


Lauren Geszler posted the following on Forbes.com in February 2015:


“While renters have historically spent about a quarter of their income on housing costs on average, they can now expect to spend about 30%, says Zillow. This can hamper the ability of individuals to save, not only for retirement but for a down payment to buy a house.


“Given how widespread rental affordability problems have become, the rental market could be acting more like a barrier to buying…”


So, there’s the affordability factor, the savings issue and in some markets there’s a scarcity problem as well.


AOL.com reported, “Rental demand has risen in much of the United States since the housing market collapsed in 2007. A cascade of foreclosures forced many people out of their homes and into apartment leases. At the same time, construction of apartments was stalled until the last couple of years because many builders couldn't get loans during the credit crisis.”


Another interesting phenomenon affecting the housing market is the increase of “accidental landlords.” Those are the people who chose to move from their home financed with a low mortgage interest rate, and, having the means to buy or rent another home, choose to keep the first one and turn it into a rental property.


Like any real estate investor, they want to see their rental property produce a nice cash flow, which means they will have to charge enough rent to accomplish that goal and yet remain competitive in order to attract tenants. For some fortunate new landlords, attracting tenants is not a problem.


CNN.com reported: “Rents increased faster than home values in 20 of the 35 largest markets. But even as rents climb, there is still strong demand for rentals, creating a housing crunch in some cities.”


Here’s a sampling of the percentage of rent increases in April of 2015, compared to April of 2014, as published in Zillow’s Rent Index:
San Francisco CA 14.9%
Denver CO 11.6%
Kansas City MO 9.5%
Seattle WA 6.2%
Atlanta GA 4.9%


As usual, “location, location, location” is the name of the residential rental real estate game. If you own rental houses in the right location now you are in a good position to profit, now and for the foreseeable future.