Soaring mortgage rates, housing shortages and high prices have led to an unfavorable market for Americans looking to purchase a new home. But even renters who aren’t currently in the market to buy may feel the impact of problems with home-buying affordability, because they could see spikes in their rent prices.
“Upward pressure on housing prices brings upward pressure on rent,” Jerry Howard, the chief executive officer of the National Association of Home Builders (NAHB), told Newsweek.
Many renters have opted to continue renting and wait out the housing market’s inflated prices, but now many can’t afford to move elsewhere. According to data released in June from real estate brokerage company Redfin, rents have increased by double-digit percentages in the past year across the country due to limited rental availability. Those remaining in their current rentals are also facing increased costs because landlords have started raising rents on current occupants to offset the money they would have made by charging a new tenant a higher rent.
Such a situation “makes it harder for low-income people to pay rent,” Howard explained. “It’s a problem across the board, and perhaps on a larger scale just as concerning is the supply shortage.”
Some experts attribute much of the current state of the housing and rental market to being a consequence of the coronavirus pandemic. A large amount of Americans began working remotely soon after COVID-19 swept through the nation, and numerous people sought to escape city environments for more bucolic settings or simply to have more space. Mortgage rates also plummeted at the time, resulting in many first-time homeowners.
However, construction of new homes was at a virtual standstill for a long period during the pandemic, and supply shortages continue to affect building. This resulted in demand far outpacing the supply of houses, and home prices quickly soared.
The pandemic has also impacted rentals. Daryl Fairweather, the chief economist at Redfin, told Newsweek that the rental market in New York City “was very soft during the pandemic as people were leaving the city but now everybody’s back.” Thus, the market has readjusted to make up for “lost time.”
But not everywhere experienced a dip in rent prices during the pandemic. Fairweather said Florida, for example, has experienced a steady increase in rent prices due to a migration to the state during the outbreak of the pandemic that has only continued. She said renters in Florida are also now feeling the pain of inflation in addition to the increased rent prices.
In May, rent was up 24 percent in New York City from the same time last year, according to Redfin. The number is even higher elsewhere, with Austin, Texas, recording a 48 percent spike in rents year over year. Overall, Redfin found that the median monthly rent in the U.S. surpassed $2,000 for the first time in May 2022.
This price comes largely from a scarcity of places to rent. Nationally, 95.5 percent of rentals were occupied in the first half of 2022 according to a June report from RentCafe. The same data found that vacant apartments on average were filled within 35 days, and 14 renters were competing for each single apartment on the market.
Fairweather said the people most hurt by the current housing and rental market are those who are considered to be in the categories of middle income and less. Meanwhile, upper income households won’t feel the economic downfall from the housing squeeze that’s being worsened by high levels of inflation.
“If you’re wealthy, you don’t feel the effects of inflation. You probably are a homeowner already locked in low mortgage payments. You’re not really feeling the current changes in the housing market so much,” she said. “For people who are already kind of living paycheck to paycheck, another rent goes up—those are the people who are most hurt.”
Fairweather added that the supply of homes has improved somewhat in recent weeks after the Federal Reserve increased interest rates, which caused less people to buy homes.
Some homeowners could possibly benefit from the hurt being placed on renters, Fairweather noted. She said that homeowners who had been looking to sell a home may find financial rewards from renting out their homes at increased rates.
“That’s been a good investment strategy….People have definitely benefited from this housing market environment,” she said, adding that such scenarios might also “ease inventory down on the rental side.”
She continued, “It seems like we’re past the peak in the rent growth. Rentals are still going up but not by as much as they were two months ago. That’s kind of good news in terms of us rounding the hump on inflation, but rent I think is going to continue to go up in the long term just because we fundamentally have a housing shortage.”
Fairweather said she’s not left with too much optimum for the rental and housing market because houses are simply still not being built fast enough to keep pace with demand.
“We have a big hole to dig ourselves out of,” she said.