Rent hit a new multiyear high in December as limited supply and “unprecedented” demand push costs higher.
Rents rose 4% compared to a year ago in December, the Labor Department said Wednesday. That’s the strongest yearly gain since December 2007, the month the Great Recession began.
Since the downturn ended, rental costs have been accelerating for two simple reasons: supply and demand.
When the housing bubble popped, homebuilders retrenched. That means there’s been less housing inventory – both to buy and to rent – than in past periods. The housing recovery has been uneven around the country, and in some places owners are still underwater, making it hard for them to move and gumming up mobility throughout the market.
In the aftermath of the financial crisis and recession, many Americans have dinged credit histories, or lost their homes or jobs and have little choice but to rent. But many others are choosing to do so, thanks to higher levels of student debt among millennials and retirement plans among Baby Boomers.
Researchers at the Joint Center for Housing Studies at Harvard University have called the surge in demand for rentals “unprecedented” and other analysts expect it to continue.
With all that in mind, there are some signs that the surge in rental costs may start to abate. Data site RentCafe estimates that new apartment inventory levels were up 50% in 2016 compared to the prior year, and that rents have started cooling off in many metros, particularly among the higher-end properties.
Still, rents are appreciating at a “staggering” pace in many cities, particularly the west.
City Yearly percent change, December
Sacramento, CA 12.2%
Stockton, CA 10.6%
Colorado Springs, CO 10.0%
Detroit, MI 9.3%
Mesa, AZ 9.1%
Long Beach, CA 9.0%
Riverside, CA 7.9%
Arlington, TX 7.5%
Nashville, TN 7.3%
Seattle, WA 7.2%
RentCafe national average 4.0%
It may seem surprising to see Detroit on this list, but RentCafe explains that while the Motor City “has recovered some of its appeal and economic strength,” new rental units haven’t kept pace.