Renters are already facing housing costs that are too high. With the average rent around $2,000 and inflation putting pressure on household budgets, there doesn’t seem to be a reprieve.
And now there's another factor impacting rent affordability: prospective home buyers that have been jilted by the housing market.
Rising mortgage rates are “pushing some people out of the home buying market and pushing them back into the rental market,” Jon Ziglar, CEO at Rent.com, told Yahoo Finance Live (video above). “So you're gonna have a lot more competition for those apartments and those rentals, especially, in the higher end, where those folks that were going to be homebuyers are now going to ultimately move into the rental side.”
Although the 30-year fixed mortgage rate slid to 5.70% last week, down from 5.81% the week prior, economists expect rates to reach 6% before the end of the year. As a result, the higher borrowing costs are weighing on mortgage demand.
The added competition in the rental market means an increase in rents as home sale listing prices and rent prices are closely correlated, according to a report from Realtor.com.
Ziglar pointed out that the average rent for a one-bedroom apartment has already gone up 27% year-over-year.
Some of the biggest rent increases are occurring in states that received domestic in-migration during the pandemic with more people working from home. In Miami, the median rent for a single-family home jumped 40.8% year-over-year in April with Orlando seeing increases of 25.8% and Phoenix seeing a 17.8% rise.
“We've already seen an increase in appreciation, particularly in the Sunbelt markets and metro markets like Austin, Texas, that are up over 100% year over year,” Ziglar said. “At the top end of the market, we are going to have prices reset and stay at those elevated levels.”
Even though hopeful home buyers are more likely to look at high-end rentals, rent increases across the board have had a disparate impact on those who lost jobs during the pandemic, especially now that rent assistance programs and rent moratoriums have expired.
“We are seeing evictions that are at 150%, even up to 200%, of historic norms in a number of markets,” Ziglar said. “So I do think we are probably going to see evictions increase, most likely because of the fact that you've got rents staying at these levels that are generally elevated versus the last two years.”
“In addition to that, you have massive inflation, prices at the pump, prices at the grocery store," he added. "And so the ability to maintain the payments on those rents, along with the increased cost of living, is going to be very difficult.”
Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda