Apartment rents heading higher in '06
Forecasts show biggest jump since 2000 as buying homes becomes harder; increased demand stems from higher mortgage rates, home prices.
NEW YORK (CNNMoney.com) - Apartment rents are expected to see their largest increase in six years this year, according to a published report.
USA Today reports that the National Association of Realtors is forecasting a 5.3 percent increase in rents this year, which is about double last year's increase. The paper reports it would be the largest increase in rents since 2000, when the Internet boom and a white hot job market sent lots of young adults out of college looking for places to live.
The last six years have seen a boom in new home construction, though, along with low mortgage rates, which helped many former renters move into their own homes, and helped keep rent increases more modest.
But the last 12 months have seen a rise in mortgage rates, coupled with sharp increases in average home prices, which has made buying a home less affordable, again increasing demand for rental housing.
"It's going to be a broad-based increase in rents, not just limited to a few markets," Hessam Nadji, who manages research for Marcus & Millichap, a real estate firm in Northern California, told the newspaper. "Renters are already facing higher energy prices and relatively moderate wage growth. This is going to really squeeze a lot of households."
Rising rents is one of the factors in the higher-than-expected jump in consumer prices in the April reading from the Labor Department.
In addition to making home purchases less affordable, the recent housing boom led many investors to convert apartment buildings to condominiums to try to cash in on the rise in real estate prices.
One out of three apartment buildings sold last year were converted into condos for sale, the paper reports, and that took 191,400 apartments off the market, according to the Realtors. In addition, the newspaper reports the number of new apartment buildings under construction is down this year.
Hurricane Katrina also is causing tightness in the rental market, the paper reports, as about half the 100,000 displaced families in the New Orleans area haven't returned. Most of those families still living elsewhere are now renting, Lawrence Yun, an NAR economist, told the paper.
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