Increasing Rent Simply "Rising" or Set to "Explode?"

The prospect of rising rent means very different things depending upon whether one is a landlord or tenant. What's seems like a burden for the displaced homeowner struggling to make ends meet is additional income to another. American Monetary Association has been monitoring the fallout from the foreclosure crisis, noting along the way the obvious side effect that was sure to appear of increase in rents brought about by increased demand for a finite resource.

Remember that increased demand is not a good thing or bad, but simply a thing that is a natural consequence of certain events. In this case the event in question is the mass arrival of the Foreclosure Class in the rental market. Having been forced from their former “American Dream,” families are now soaking up the remaining stockpile of available rentals at a frenzied rate, which drives the prices ever higher.

How high?

John Burns Real Estate Consulting estimates that prices will increase by as much as 25% over the next three years, especially in high-demand coastal areas. The foreclosure crisis isn't the only factor creating pressure on rents. Consider also the Burns theory that about 3.4 million units of pent up

demand are sitting out there in the form of young adults living at home or with roommates to save money. Mass media philosophizing aside, these people don't intend to live that way forever and most do want to eventually find a place of their own. “We expect this demand to materialize over the next few years, with most of the demand entering the apartment market because of the inability to qualify for a home and uncertainty over their employment situation,” vice president Leslie Deutch recently said.

But these aren't the only two forces in the mix. Stubbornly high unemployment is forcing older adults to reassess whether or not they want to take on the burden of a mortgage under precarious job conditions. For the moment, it seems safer to rent and wait for economic conditions to improve.

Ultimately, in a bit of bad news for landlords and good news for renters, home ownership will make financial sense again. Most people would prefer to own a home as opposed to renting but it might take a few more years yet for other factors to stabilize enough that lenders and buyers can come together once again in a symbiotic relationship.

The American Monetary Association Team

American Monetary Association

Flickr / wharman

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