If you’re leasing a home, you probably know this already: The past few years, rents have been going up. And up. And up. Rents have been increasing at a faster rate than home values. While rents aren’t likely to go down anytime soon, their raising rates will stay steady than spike anytime soon.
Here are top 5 predictions for the rental market this year.
- Rents will become more affordable. Rising rents will stabilize throughout 2017, with overall U.S. rental appreciation nearly flat, around 1.5 percent. Most of the slowdown in rental appreciation is due to a surge in multifamily constructions and home developments. More supply to meet the continuing demand helps keep the market in check, which is good news for renters.
- More millennials will buy homes. Homeownership has been falling annually since 2006, and it remains at a near-historic low. While new households are always occurring — kids move out on their own, couples split up, roommates find their own places — most of those households are rentals. This trend may soon change, however, as more millennials start getting married or having children — leading to their next goal of buying a home.
- Populations will shift. Urban density will increase, but the suburban migration will continue. Studies are showing millennials might be thinking about upsizing, while older Gen-Xers and boomers will be downsizing and looking for walkable neighborhoods, creating more competition for urban housing areas. Low housing inventory and higher rents will continue to push renters out of the city in search of more affordable housing, and, as a result, more people will be driving to work — a reversal of a decade-long trend — as they move outside areas served by public transportation.
- New homes will be priced higher. All over the U.S., construction of single-family homes haven’t been able to keep up with demand, and that may not change anytime soon. The home construction workforce is shrinking, while construction wages have risen. The labor may become even scarcer as immigration policies tighten. It’s estimated that undocumented workers make up 10 to 20 percent of the single-family construction labor force, so the loss of those workers could drive up wages even higher. The combination of rising wages and high land prices has led more builders to focus on the top-tier market — but those homes are out of reach for many first-time buyers. If there aren’t enough entry-level homes to purchase, those would-be buyers will continue to rent.
- Interest rates will rise. Economists have been expecting interest rates to go up, and the Federal Reserve fulfilled those expectations with its modest rate increase this month. As unemployment rates fall and wages continue to grow, additional rate hikes are likely. However, a new administration in the White House supporting low interest rates, can counteract that and keep them.