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Why rising rents in 2018 may not be problematic

Feb 20, 2018 Philip Burgess

Why rising rents in 2018 may not be problematic

With home prices in the U.S. having risen each month on an annual basis for several years uninterrupted, rental units are in high demand for would-be buyers as well as those who have no intention of becoming homeowners. Due to dwindling supply, it's looking like 2018 could bring further increases in rent prices, a potential issue for the unbanked and underbanked, both of whom rely on regular rent payments to shore up their alternative credit reports.

"Rents rose 2.4% in 2017 to a median $1,437."

The median rent in the U.S. currently stands at roughly $1,437 per month, according to newly updated figures from real estate listings firm Zillow. That's an increase of 2.4 percent over the calendar year.

Conveniently - or not, depending upon how you look at it - incomes are also rising, based on government data. Stretching back to November 2017, personal income levels are up 2.5 percent and hourly earnings a more moderate 0.2 percent, the Labor Department reported.

Rents climbing high in the West
With both incomes and rents increasing - and at roughly the same rate - many renters are taking advantage of their raises by reaching further into their pockets to make up the difference. However, in some parts of the country, rents are moving at a pace that's far faster than the national median. This is particularly true in the West. Rents are up 7.5 percent in California's capital city, 6.2 percent in Riverside and 5.4 percent in Seattle.

It's a similar trend on the West Coast for homes on the market. In the fourth quarter of 2017, the median was $374,400 for a single-family residence, according to the National Association of Realtors. That's up 7.2 percent from the corresponding three-month period in 2016 and well above the national median ($247,800).

Aaron Terrazas, senior economist at Zillow, indicated that the current state of the real estate industry has budget-minded families stuck between a rock and a hard place after a relative period of calm, at least among rentals.

"After about a two-year slowdown, rent growth is starting to pick back up across the nation," Terrazas explained. "The slowdown in rental appreciation, combined with consistent income growth, gave renters some reprieve from worsening rental affordability over the past few years. But as rental growth begins to catch up with income growth, affordability will deteriorate, placing a squeeze on budget-constrained renters."

Calendar depicting when rent is due. Rising rents can impact tenants' ability to pay promptly.

24 percent increase since 2007
It isn't just Zillow that is forecasting steeper asking prices for renters, given how 2017 closed out. According to figures compiled by Yardi Matrix, the typical renter spent $1,359 per month to lease a place last year, according to RentCafe and That's a 24 percent jump from 2007. The fastest growth was observed in Las Vegas (6.3 percent), San Diego (5.5 percent), Detroit (5.6 percent) and Columbus, Ohio (4.9 percent).

The growth in rental prices may present some renters with a challenge, particularly those who are living paycheck to paycheck. However, various indicators suggest the typical consumer is faring better in the financial department. Incomes are up, as previously referenced, and due to the effects of tax reform, take-home pay has taken off, relatively speaking, noted Jean Chatzky, financial editor at NBC News.

"About 80 to 90 percent of people are getting an increase of about 1 to 2 percent," Chatzky explained.

This means that for the typical household earning roughly $59,000 - which is the current median, according to the U.S. Census Bureau - families will see an increase of around $1,100 in annual income. Earnings rose 3.2 percent in 2016 from the previous year ($57,230).

Furthermore, Americans are feeling more confident about both their own financial situations as well as the U.S.'. Residents in Wyoming, North Dakota and Utah - three of 17 states where scores improved from 2016 - have the highest levels of optimism at plus-25 in Gallup's Economic Confidence Index

Circumstances vary, but based on the some of the data, rising rents shouldn't throw too much of a wrench into tenants' ability to pay promptly when rent is due.

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