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Meta description: The rental market is constantly changing. It’s important to examine the current financial health of US renters and what you can expect from the rental market in 2024.
The US rental market has thrown many curveballs over the last few years, and it doesn’t show signs of stopping anytime soon.
In September, we observed a median rental price of $2,011, showing a 0.40% uptick from the same period last year. While this increase isn't earth-shattering, it's impacting some renters more than others amid the uncertainties of our current economic climate. The rising costs of essentials, like food, are putting pressure on individuals, making it challenging for some to meet their rental commitments. Adding to the complexity, borrowing money has become a pricier endeavor for renters as interest rates continue to climb.
No doubt, the economic landscape has cast a shadow on the rental market. What's driving these shifts? Let’s unravel the current financial dynamics of U.S. renters and discuss predictions for what lies ahead in the rental market for 2024 and 2025.
Inflation Will Still Be an Issue in 2024 (and 2025)
Thanks to inflation, the prices of essentials like gas, food, and various products have soared over the past few years. This translates to a lot of folks grappling with the challenge of affording rent, service charges, and other expenses. The surge in costs has also meant property managers are shelling out more for repairs, maintenance, and other vital services for renters.
As of June 2022, inflation hit a whopping 9.1%, although it has considerably tapered off in the last 18 months. But here's the kicker – it's not tapering off quickly enough for many renters. To add to the complexity, the Federal Reserve doesn't anticipate inflation returning to target levels until 2026. That means renters might be contending with economic challenges for the next few years as the financial landscape sorts itself out.
Property Managers are Making Up for COVID Losses
During COVID-19, many property managers initiated rent freezes and discounts on their properties as the economy bottomed out. Now, nearly four years after the height of the pandemic, some properties are still recouping losses by increasing prices, leaving renters in a difficult predicament. This is a trend that will likely continue in 2024 and 2025.
Renters Have Less Choice as Housing Stock Drops
The scarcity of available housing is narrowing down options for renters, especially those in search of affordable properties. Recent reports reveal that rental vacancies dwindled to less than 6% of all homes from July to December 2021 – the lowest level since 1984. With a limited inventory, many renters are finding themselves compelled to settle for places outside their budget.
As we peer into the crystal ball for 2024 and 2025, uncertainty looms large. A further economic downturn might prompt more individuals to move in with family and friends rather than commit to lease agreements, potentially flooding the rental unit market. On the flip side, a stronger economy could spark an increased demand for rental units, thrusting renters into familiar challenges like limited housing options. The conundrum intensifies in areas where demand outstrips supply.
Borrowing and Paying Back Money is Expensive
Renters are navigating a challenging terrain when it comes to securing loans due to soaring inflation. Banks are responding to this economic climate by hiking up interest rates on loans, credit cards, and various financial products. To add to the challenge, several financial institutions have tightened their lending criteria, making it tougher for those with less-than-perfect credit to access funds. Looking ahead to 2024 and 2025, many renters could face restricted access to the financial resources crucial for handling unexpected emergencies and essential needs.
The ripple effect of high interest rates extends to renters currently repaying credit cards and loans. Individuals grappling with substantial monthly payments may find themselves needing to tighten their budgets or explore additional income streams to ensure they have enough funds for rent every month.
Prospering in the Current Rental Market
Renters in the U.S. face a host of challenges right now. Many people are still struggling to pay for goods and services on top of rental payments, even though inflation has dropped from last year. Unfortunately, this trend could continue until at least 2026. Other issues are causing problems for renters, such as limited housing stock, the cost of borrowing, and property managers recouping COVID losses. While not all renters will have it bad in 2024 and 2025, many will need to evaluate their budgets to make rent payments on time, and properties and renters everywhere will need to adjust accordingly.
