Steep rental increases, that have even doubled monthly rents in some areas of the country, are sparking more house-hunting activity by investors eager to pick up rental properties.
The increase in rent is being fueled by a stronger economy and two growing industries: energy and technology. San Francisco's Bay Area is seeing some drastic spikes in rent.
San Francisco ranked the highest of the top-50 United States metropolitan areas in average rent growth during the second quarter of this year. Rents increased by 7.8 percent, according to preliminary estimates by MPF Research market-research firm based in Carrollton, Texas.
Oakland landed the number two spot with an increase of 6.9 percent followed by these metro areas which had the most severe increase in 2013 second quarter compared to a year earlier, according to MPF Research.
- San Francisco: 7.8%
- Oakland, Calif.: 6.9%
- Denver: 6.1%
- Seattle: 6%
- San Jose, Calif.: 5%
- Portland, Ore.: 4.4%
- Houston: 4.3%
- Austin, Texas: 4.1%
- West Palm Beach, Fla.: 4%
- Fort Worth, Texas: 3.6%
Source: MPF Research
The rental increases have developers breaking ground on new projects in these hotbeds while investors are seeking to pick up everything from apartment buildings to existing single-family homes to rent. Even some homeowners are choosing to move out of their homes to rent them and bring in some extra cash. Some plan to use the extra cash to make general maintenance repairs on their home while they move into a second home.
The rental increase is making this an excellent time to buy. Couple that with the recent findings from trulia.com that showed that in all of 100 large metros, owning a home is cheaper than renting one by as much as 44 percent nationwide over a seven-year period (depending on specific assumptions).
Trulia used a comparison that assumed that buyers have a 30-year fixed-rate mortgage and put down 20 percent. Additionally, the following three important factors were assumed when comparing owning to renting: 1.) people get a 3.5 percent mortgage rate, 2.) are in the 25 percent tax bracket and itemize their federal tax deductions, and 3.) will not move before seven years.
If you're considering buying, now is a good time to at least start the process. In some areas the existing housing inventory is lower so finding the right home may be more challenging. Rates are expected to continue to rise but by how much is uncertain. Still, according to Trulia, moderate interest rate increases would still not make owning a home more expensive than renting one.
The best thing interested buyers can do is to begin their research. Picking the most experienced and knowledgeable team to guide you through the process will strengthen your chances of landing the ideal home at the right price.
Meanwhile, keep an eye on your rental market while you're attempting to buy. It's likely not worth it to have to move from one rental property to another before buying,but some tenants are facing this scenario because of rapid and steep rental spikes. This may just be what pushes some renters into home owners in the very near future.