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The critical housing shortage is now taking its toll on renters. Potential buyers are having an increasingly difficult time finding a home they can afford, so they are renting longer.
That's pushing rental demand higher and rent prices along with it.
The median rent in the United State rose 2.8 percent over the past year to $1,445, the fastest pace of appreciation since May 2016, according to Zillow. Rents are rising fastest in some expected markets, like Seattle and Sacramento, California, and in some unexpected places, including Minneapolis and Atlanta.
Rental appreciation had slowed in the past two years as new apartment supply came online following a construction boom. But it is now rising again due to the record-low supply of homes for sale.
"For-sale inventory is tight, and with home prices continuing their rapid climb, it's becoming more and more difficult for renters to become owners, forcing them to rent longer than they otherwise would have," said Zillow senior economist Aaron Terrazas. "Searching for the 'right' home has become a drawn- out affair and rising prices require more savings for a down payment."
The strong pace of apartment construction in the last five years has mitigated some of the supply problem, but most of the new apartments are in luxury buildings. Luxury rents have actually come down in the past six months, but rents in the rest of the market, where supply is leaner, are doing just the opposite.
Rising mortgage rates only exacerbate the problem because they decrease affordability for potential buyers as well. New households are forming at the fastest pace in two years, and more of them are owner households, a reversal from the recession when renter households outpaced owners by far. But current renters are not moving to ownership at even close to a normal pace, and that is keeping occupancies high.
Naim Ali, 25, is hoping to buy a home in Atlanta but has been having trouble finding something he can afford. He was renting but then moved back in with his parents in order to save for a downpayment.
"I've rented before. I'm tired of money every month going toward something I'm not going to ever own," said Ali. "It's not a good long-term play to keep putting money into apartments."
National apartment occupancy was 95 percent at the end of last year, and that could move even higher in coming months. Construction of new apartments has been slowing, and new single-family home construction is nowhere near where it needs to be, given red-hot demand.
"The country's apartment market remains tight, with product availability generally limited to recently completed properties moving through initial leasing," said Greg Willett, chief economist at RealPage. "Unless a renter can afford that expensive new stock, finding a ready-to-lease unit takes some real work in most locations."