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Rent Sense: 2012 R.E. Outlook

Rent Sense: 2012 R.E. Outlook

By Neil Fjellestad and Chris De Marco

According to a recent Fannie Mae National Housing Survey there is consensus that rents will rise. Consumer expectations measured in this survey seem to be in line with forecasts by the National Associations of Realtors; the range of rental increase is expected to be 3.25 to 3.5%.

Apartmentratings.com reports that rent in San Diego for a two bedroom floor plan averaged $1421 this year. So, renters can probably expect a $50 rental increase per month unless you are protected by a lease that doesn’t expire in 2012. Now this might be understated if you have been getting a deal (below market rent). Rental owners are going to be more confident to raise rents up to market as the economy improves.

Rising rents might impact the home-ownership market in several ways. Some might believe this to be a sign that home prices will start to increase (22% of respondents believed in price increases during 2012) and take this as a signal to buy a home. Adding to this urgency to act is the belief that mortgage rates will go up over the next year; 33% of American’s believe this to be the case. Certainly consumers still want to buy- 63% say they will buy their next home versus 32% indicating they will rent.  As their household employment improves more people are encouraged to fulfill their intentions.

Another impact might be that investment purchases (not speculators) of residential properties will become more popular. Potential investors sense that even in a slow recovery everyone needs to live somewhere. In some ways buying a local house or condo to rent out while holding it for an extended period seems like a safer alternative to a stock market that seems to be manipulated by national politics, the financial future of Europe and who knows what?  On the other hand, normal investors need to get their cash working again because 70% of boomers over the age of 55 are not financially prepared to retire and they keep having birthdays. These individuals are saving but can’t be content with their status quo and need a long-term, tax favored investment return to change their future. With these concerns some might return to the one traditional method to build retirement wealth; own rental property.

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