The big deal about rising rents in real estate

Values have been rising and so have rents. Across the country we’ve been hearing of rent increases in many cities (including Sacramento). Why does this matter? If you work in real estate, how do you plan to communicate this trend to clients? Let’s talk through some key points. I’d love to hear your take in the comments.

rising rents in sacramento - by greater sacramento area appraisal blog

Things to keep in mind about rising rents:

  1. Low Inventory: Rents are rising in large part due to low inventory. There has been population growth over the past decade, but very few new housing units have been built since the housing “bubble” burst. This essentially means we have a shortage of housing units. Keep in mind this isn’t an easy issue to solve since building a large number of units won’t happen overnight.
  2. Squeezed Savings for Tenants: Wage growth has been more or less stagnant in the Sacramento area at least, which means rent increases are coming directly out of a tenant’s savings account. Remember, if a tenant is saving up to buy a house, it’s going to now take longer to make that happen.
  3. Investors Holding: There are investors enjoying higher rents, and many will hold on to their properties for now instead of selling. Unless an investor is looking to diversify outside of real estate, an investor’s money is probably parked well right where it is. After all, why would an investor trade in great rentals only to buy something else at a much higher price today (and get the same rent)?
  4. Investors Selling: Not everyone is going to hold on to their properties though. There are many investors who purchased at lower prices from 2009 to 2012 especially, and it’s now time for them to cash out. Quite a few investors are actually selling directly to their tenants off MLS (agents, be there to write up the contract and help guide the process).
  5. Old Numbers: When rents rise quickly, sometimes the rents we see published online from a few quarters ago are simply old. Just like with rising values in the resale market, we have to ask whether the rental market has changed since the most recent data was published. Ultimately it’s important to look to a number of sources to get fresh numbers. Here are some suggestions: Craigslist, Hot Pads, Zilpy, Rent-O-Meter, & Zillow.
  6. Not Every Neighborhood: Like any trend, it’s easy to hear “rents are rising” and think that applies everywhere. Let’s remember some rental markets are hotter than others though. Apartment rents are said to have increased 10% last year in Sacramento and are projected to increase by another 10% this year. A similar dynamic is happening with single family units too, though NOT in every neighborhood.

I hope that was helpful.

Rental Event: By the way, I am helping put together a “Show Me The Money” event at SAR about the rental market. On May 18th from 12-1:30pm a property manager will talk through rental trends and give tips to agents for turning tenants into buyers. This is hosted by the Housing Opportunity Committee (which I chair this year).

Questions: What is point #7? Did I miss anything? What source do you use for rental data?

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