A research done by Zillow showed that rental prices this year in April, have been up 4% compared to the same month in 2014. With this growth it has outperformed the buying market, where real estate prices have been up by 3%. Rents haven’t been going up this rapidly in two years. These developments leave newcomers to the housing market scratching their heads whether to buy or rent.
Buying or renting
In a recent blogpost we’ve explained why in some cases it could be better to rent than to buy. One reason we mentioned was the lower monthly costs. In the current situation with rents going up, it could make more sense to buy if you’re just looking at the monthly cost aspect.
There are big differences in rental prices between different areas in the US. In 20 of the 35 most important cities, rents have been going up. The area with the most significant rent increase was San Francisco with about 15%. Important cities like New York have shown the same pattern with Brooklyn rental prices even hitting a record high.
During the financial crisis, rents have still kept increasing every year. Now that the increase in house prices have slowed down, rents are surpassing real estate prices and this creates a situation in which buying might be cheaper than renting.
Why are rents going up?
Incomes haven’t been going up at the same rate as rents have. It’s become harder for people to rent and it takes a larger portion of their income to do so.
The reason for rent prices to go up, is the increasing popularity of apartments which is largely caused by the increasing amount of employed people. This group of people have problems financing a home so apartment rentals are their preferred choice.
Landlords have a strong position as the demand for rental apartments is continuously going up. This makes it unlikely to see rent prices going down anytime soon. If people can afford it, they are choosing to buy.
There is a group of people that are looking to rent a home but are actually better off buying. For anyone wanting to enter the real estate market it would be wise to seriously look at the differences between mortgage costs and rental costs. Some money could be saved this way although price is not the only determining factor in deciding whether to buy or rent.