Priced-out homebuyers are facing yet another challenge eating away at their budgets: sky-high rent.
Asking rents hit another high in July, a new report from found, with the national median asking rent price up 14% year over year to $2,032. The annual increase was the smallest posted since November, compared with a revised 15% in June and 16% in May. On a monthly basis, the median rent only inched up 0.6% – the slowest growth since February.
Still, the modest slowdown doesn’t mean discouraged homebuyers haven’t been driving up rent prices across the country. Asking rents have risen more than 30% in some of the 50 largest markets, Redfin said, and they will continue to increase in markets with strong job growth and limited housing construction.
“With the sharp rise in mortgage rates from the beginning of this year, we have seen home sales come down,"National Association of Realtors Chief Economist, Lawrence Yun, told Yahoo Finance Live (video above) “People who want to purchase a home... can no longer purchase, so now they are becoming renters.”
Housing shortage drives rent prices up
Decades worth of under-building have pushed inventory levels near record lows, both for for-sale homes as well as rental units.
The supply of homes for sale increased 27% at the start of September compared with a year ago, Realtor.com data showed. Still, active inventory of for-sale homes remained 43% lower than it was in 2019. The lack of inventory has kept home prices high and out of reach for some buyers struggling to enter the market.
“We had a housing shortage before the pandemic” Yun said, “...and then it worsened during the pandemic as people went rampant in terms of purchasing properties.”
Sidelined buyers have had no other choice but to rent. The problem? Rent prices have been skyrocketing as well, as landlords capitalize on the growth in demand.
Nearly 60% of renters said they experienced higher rent in the past 12 months, a recent survey showed, with at least 1 in 3 tenants seeing their rents hike up by 10% or more. At least 11% of the 2,000 respondents said they saw an increase of more than 20%, while 6% saw a rent jump of more than 30%.
“Rental demand has been rising from a sharp rise in mortgage rates, right along with continuing job creation,” Yun said. “I think that we have several additional months of further rising rents.”
Rent still climbs in certain markets
Pandemic home-buying hotspots are registering some of the largest rent hikes to date, with prices running at the heels of home prices.
“Rents are rising very fast and home prices are rising. Even with a reduction in home sales – prices continue to rise,” Yun said.
Asking rents in Cincinnati increased 31% year over year, according to Redfin, the highest among the 50 most popular metro areas. The figure was down from a 39% annual increase in June, when Seattle, Austin and Nashville registered rent hikes of more than 30% from a year prior.
Though the growth in rent increases has slowed down, some markets will continue to see pressure. For instance, hubs like New York are expected to experience more rent increases due to strong job growth and limited construction.
The median rent asking price was up 23% in September from a year prior in New York, Redfin said, an average $4,509 per month. A separate study by Miller Samuel and Douglas Elliman, found that the average rent in Manhattan for the first time on record. Average rents were up 29% from a year ago.
But that doesn’t mean prospective homebuyers won’t be able to buy — they’ll just have to look elsewhere to afford it.
“The Midwest market is the most affordable for someone who has the flexibility to move,” Yun said. “The Midwest offers buying a decent-sized home at affordable prices. The southern states, especially Florida, are still super hot.”
“I would say the West Region California or possibly Portland and Seattle, there may be some price reduction, minor reduction, some people may take a chance to try and to grab those falling prices,” Yun said. “But overall across the country in nearly every market, prices are higher now compared to one year ago.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.