Rents Likely To Stay High as Home Sales Market Cools

“As the central bank raises interest rates to cool down the economy and contain rapid inflation, it is also pushing up mortgage costs, putting home purchases out of reach for many first-time buyers. If people who would have otherwise bought a home remain waylaid in apartments and rented houses, it could compound already-booming demand — keeping pressure on rental prices.” According to an article by Jeanna Smialek and Conor Dougherty in The New York Times, “Rents on new leases climbed by 14.1 percent in the year through June, according to Apartment List, an apartment listing service. While that is slightly less than the 17.5 percent increase over the course of 2021, it is still an unusually rapid pace of growth. Before the pandemic, a 2 to 3 percent pace of annual increase was normal.”

As the article explains, “Rent-related costs make up nearly a third of the closely tracked Consumer Price Index inflation measure, so anything that helps to keep them climbing at an unusually brisk pace is likely to perpetuate rapid inflation.”

Despite federal efforts to boost affordable housing construction over the long term, supply chain issues and inflation are slowing the pace of new housing construction, much of which skews to the luxury end. “As people compete for a still-constrained number of apartments, it is unlikely that rental prices will fall from the elevated levels they have reached in the past year, experts said — they will probably just climb more slowly than they are now. And as labor and utility costs for landlords rise, they could even continue rising faster than normal.” Today, many renter households continue to struggle in a highly competitive rental market even as the market for purchasing homes slows down.