Real estate professionals warn about the lack of rental units, whose prices are skyrocketing amid a lack of supply, rising mortgage rates, a strong job market, and overall inflation. All this is making people abandon discretionary spending and disabling them from saving for a downpayment.
A sign of relief for homeowners is any, even insignificant, drop in mortgage rates. The week ending August 4th marked the 30-years-fixed rate drop from 5.3% to 4.99%. However, it still doesn’t change the fact that the consumers' confidence fell and that people are pausing their property searches and listings.
What does that mean for the renting market? When more people give up owning, they need to rent. Additionally, the job market is standing strong, with an unemployment rate lower than 3.5% - the lowest it has been since 2019. Millennials and older GenZ are now employed, looking to move out of their parent’s place, and again looking for a rental.
Meanwhile, the rental market is not as strong - there is a decade-long lack of supply. In light of overwhelming competition, the landlords are increasing rents by the month. June marked the highest average rent climb since the 1980s - 0.8% month over month. If this continues, we could look at rents rising over 11.3% year over year - which was this year’s increase.
When people think about basic necessities, they are less likely to spend money on non-essential items. Inflation is already making it hard for people to relax and open their wallets, but rising rents are now eating the savings pool.
California, which has a historically low rental supply, is seeing rents climb through the roof. Some tenants are paying around 30% more in just a month, but on average, the rent might climb by 10%. Real estate experts see inflation as the main contributing factor.
People who are looking for a rental in California can already expect much higher rents than a few months ago due to the competition. However, tenants who locked in their rentals in Pasadena, San Diego, or any other SoCal city without rent controls can expect their rent to grow during the next few months.
Landlords report that rent jumps are nothing more than a response to rising costs - gas, electricity, repairs, and insurance. However, not all of them are able to increase the rent, as many old buildings are rent-controlled, and many tenants are still protected by the eviction moratorium.
As high prices hit from every angle and national job security continues to strengthen together with mortgage rates, it is unlikely that the rental market will see a decrease in demand. The major danger could fall on low-income families, who are even now struggling with paying rent.
California already has the highest rate of homelessness in the whole country, with over 150,000 people on the streets. A 10% rent increase isn’t going to help that number be any smaller.
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