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A large portion of the country is seeing rental prices for homes increasing. Home ownership rates across the country, meanwhile, are steadily decreasing. Now you may think this trend signifies a bad economy. To an extent it does. There are a number of factors underlying that I will attempt to explain below.
The drop in home ownership is due to a poor economy. Weak economic growth means fewer people can afford to own homes. The increase in the rental price of a home is caused by two factors. The first is supply and demand. In many metro areas, there is a strong demand for home rentals. Supply in many cities is limited. A high demand and a short supply raises prices on the homes in numerous metro areas in the United States.
There is also another factor at work in driving rental home prices up. Many younger people and couples cannot afford to take out a home loan. As they outgrow apartments, they naturally look for single family homes. Unable to secure a mortgage, many younger people opt to rent a home instead. Reasons why the younger generation goes for renting a home instead of buying includes a high student debt and low credit scores.
The booming home rental market in some segments is creating highly profitable assets for the homeowners. Many of the homeowners now, are not people. They are institutional investors. What this means is that they could be banks, realty groups or other investor groups. So many people now rent from a company or institution, instead of a person.
Here are some numbers that show just how much rental prices are increasing for single family homes. Cape Coral, Florida, saw the price of its rental home market increase by more than a quarter in just over a year. Imagine, if you paid $2000 a month, you suddenly end up paying $2500 a month, a year later.
The states of California and Florida had 10 of the 25 biggest increases for metro areas when it comes to home rental prices. Other notable cities where rent is expected to increase and that have a high rate of return include Grand Rapids, Syracuse, Pittsburgh and Shreveport. All of these cities have returns of about 15% as an investment from a rental home. These figures show that rental homes can be a very lucrative investment.