I’m A Real Estate Agent: Here’s What Will Happen to the Housing Market If Rent Keeps Rising
According to a Joint Center for Housing Studies of Harvard University report, a record number of Americans spend more than 30% of their income on rent and living payments. The historically high rental increases of 2021 and 2002 have left many struggling to get by and it looks like inflation may continue to be an issue for the foreseeable future. We will look at the possible consequences if rent continues to rise nationwide.
Be Aware: 7 Florida Cities That Could Be Headed for a Housing Crisis
Explore More: How To Get $340 Per Year in Cash Back on Gas and Other Things You Already Buy
We will offer insights from real estate agents on how rising rents might impact home buying trends, market dynamics and overall real estate conditions.
Current Rental Prices
Before we look at predictions, it’s crucial to understand the current state of the rental market. According to Rent.com, the median national rent increased to $1,987 in March, a 0.77% annual increase.
According to Zumper, a real estate data platform, the national rent for a one-bedroom unit went to $1,487, a 0.3% increase, while the rate for two bedrooms went up to $1,847, an increase of 0.5%. The report noted that the market appears to be returning to a typical pattern where demand slows down in the winter and returns in the spring season.
Trending Now: I’m a Real Estate Agent: These 5 Cities Are Becoming Unaffordable
Regarding rates that stick out, the rental price for a one-bedroom unit in New York City shot up 25% last year. While experts hope rental spikes will be lower than in 2021 and 2022, rental prices will likely continue rising.
More People Will Consider Buying Property
“When rents start climbing, it often nudges folks towards seriously considering homeownership,” said Brett Johnson, a licensed realtor in Colorado and owner of New Era Home Buyers. “If you’re already shelling out a hefty chunk each month for rent, you may want to put that towards owning your slice of property.”
The real estate agents we spoke with agreed that higher rental prices will drive these people toward homeownership since they’re already allocating a significant portion of their income toward housing costs.
“Rising rents typically drive more people towards buying homes because they want stability against the possibility of costs, said Yancy Forsythe, a licensed real estate agent and the owner of Missouri Valley Homes.
Another common theme among the realtor’s predictions was the idea of stability, as renters could get frustrated with the constant price increases that are eating up their budgets.
“If rents continue to rise, we might see an increase in home buying as people seek stability and an escape from escalating rental costs,” added Shannon Feick, a licensed realtor in Ohio and co-owner of ASAP Properties.
More renters trying to enter the market could lead to the next predicted issue.
Housing Prices Could Go Even Higher
“Higher rents could push more individuals towards homeownership, potentially heating the market even further,” said Feick.
Due to basic supply and demand, more people trying to buy homes would drive the prices higher. As more buyers enter the market, this could bring back bidding wars, further shooting up the housing prices. This could naturally lead to higher rental prices in the future.
Forsythe agreed with this sentiment, “This trend can result in increasing demand, which often results in higher home prices.”
CoreLogic’s recent data shows that housing prices increased 5.8% from January 2023 to January 2024. Housing price growth is expected to slow to 2.6% by early 2025, but there’s no telling what the rest of the year has in store.
If renters decide to enter the market, this could cause another spike in housing price growth, especially as there’s hope that the Fed will begin to drop interest rates.
First-Time Buyers May Struggle
The National Association of Realtors (NAR) recently reported that first-time home buyers are struggling as this segment was only 32% of the market last year, under the normal 40%. Economists from NAR cited higher home prices, increased mortgage rates, and lower inventory as causes that are leading to increased competition. This is all making it difficult for first-time buyers to enter the market.
“This shift in more people buying property could lead to a more competitive market and make it harder for first-time buyers to find affordable options,” said Feick.
If the rents continue to rise and more people try to enter the real estate market, the prices will increase, leading to increased competition. First-time buyers who struggle to enter the market could grow frustrated and consider moving or looking into other options.
Housing Options Could Change
“The rise in rents could also intensify the demand for more affordable housing options, which would influence builders and developers to focus on these types of homes,” said Feick.
If renters get fed up with traditional living spaces, there could also be a higher demand for alternate dwelling units (ADUs), smaller units attached to an existing property. These units help with affordability issues, and more jurisdictions should embrace them.
Sellers May Get Better Options
“With more people eyeing homeownership, demand for properties can amp up, leading to increased buyer competition,” said Jonhson. “Sellers might find themselves in a sweet spot, with more leverage to negotiate favorable deals.”
If sellers have more options, they could use this as leverage to get better deals. This could lead to higher housing prices or overall changes in negotiations. One common example is that the seller could ask to waive a house inspection since they have multiple options.
Tighter Regulations on The Rental Market
“Rising rents can also impact rental property investors,” noted Jonhson. “They might find opportunities to increase their rental income, but it could also mean tighter regulations or more competition in the rental market.”
With more investors entering the market, local governments may have to change regulations to make housing more affordable. Over the last few years, one common issue has been the regulations on short-term rentals and platforms like Airbnb.
Real Estate Market Dynamics Could Shift
While it’s difficult to predict what could happen if rent rises nationwide, the experts all agreed that the market dynamics could shift in 2024.
“Rising rents can shake up the real estate landscape, affecting everything from buying trends to market dynamics,” said Johnson. “Keeping a finger on the pulse of these changes is key to navigating the ever-evolving real estate terrain.”
As buying trends shift, you may notice housing price increases in your community or find it easier to sell your home.
Forsythe added:
“From a broader perspective, as rents climb, we might see a significant shift in real estate conditions with potential buyers rushing to secure mortgages before affordability declines further.”
As investors and economists anxiously wait for the Fed to announce rate cuts, there could be a significant transition in the summer months as people look to become homeowners.
What’s Next For The Rental Market?
“As a real estate professional, I believe that prolonged rent increases will eventually stabilize as more people decide to buy and balance the market over time,” said Feick.
While predicting the real estate market’s future in the last few years has been challenging, it’s important to remember that you can only make financial decisions based on the information you have. We will continue to monitor the market as we enter the summer months.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: I’m A Real Estate Agent: Here’s What Will Happen to the Housing Market If Rent Keeps Rising
