Fewer Vacancies and Higher Demand Means Big Profits for Landlords

If you’re planning to rent a home in the near future, you may wish you could turn back the clock a few years to the time when the recession was at its peak. During that period, it was unquestionably a renter’s market. The nation’s rental-vacancy rate swelled to 8%, and landlords were scrambling to fill their investment properties. This means bigger profits for landlords.

Today, however, the pendulum has swung mightily in the other direction. By the end of 2013, the experts at Reis, Inc. predict the nation’s vacancy rate will continue to shrink and rents will increase 5-7% through the end of this year.

So what’s causing the major uptick in rentals? There are many reasons.

• It’s harder to get a mortgage than ever before. Money is no longer being passed out like candy for mortgages the way it was prior to the recession, and a recent zillow.com survey showed that a full third of applicants could not qualify for a mortgage at all.
• The increasing amount of foreclosed homes and short sales is forcing displaced homeowners out of their houses and into rental properties.
• People who moved in with relatives or friends to survive during the recession are now once again able to go out on their own. Also, with a stronger economy, young adults are moving out of their parents’ homes sooner than they’d done in recent years.
• Many people are convinced the prices of homes are not done dropping. As a result, they are content to rent and wait for what they consider to be the right time to buy.
• There are simply not as many rental properties available these days as in past years. HarvardUniversity’s JointCenter for Housing Studies reports that the number of multi-family dwellings declined by about 240,000 per year from 1999 to 2009.
• Each time a tenant moves out, it gives a landlord one more opportunity to raise the rent on his or her property when the new tenant arrives.
• People are moving to new locations for jobs, and they are renting at their new destinations. No longer is the idea of purchasing a home and living in it for 30 years a feasible one for most of us.

According to the National Association of Realtors, apartment rents rose 4.1% in 2012, and by the end of 2013 that number is expected to rise to 4.6% (source).

The bottom line is simple: Until the supply of our nation’s rental property is once again higher than the demand – which may be a long time coming – it appears that renters are going to pay a hefty price for a place to call home.