Dive Brief:
-
Renters who renewed their leases for the last five or more years rather than move to a new apartment saved roughly $329 each month, according to Zillow’s analysis of 2015 rent data from the American Community Survey.
-
The annual market rate rent jumped 5.6% from 2014 to 2015, while for renewed leases, the rent increase was just 3.6%. More than half of renters planning to move in the next three years are considering another rental.
-
Renters in markets experiencing faster rent growth can gain from staying put. For example, Boston renters saved $8,979 over five years versus $842 for renters in Las Vegas. Many landlords use concessions to discount the market rate increase to a level that matches local renters' willingness to pay.
Dive Insight:
A continued rise in rent costs is a significant trend because more potential homeowners are waiting to buy. The combination of low inventory and high prices has forced many renters to keep renting as they save up for an often-hefty down payment. While millennials aspire to own a home, they are hindered by student loan debt, a tight credit market and the high cost of homes today.
The growing prevalence of single-family, built-for-rent homes could further stall prospective homebuyers’ plans to own as these properties provide many of the same features as a detached, owned home. AHV Communities is one company building large-scale developments to serve that very purpose — catering to tenants who cannot afford to buy a home yet (or simply don’t want to own), but desire the experience that single-family living provides.
While there is a noticeable gap in rent increases for those who renew their leases over a multi-year period versus those who move each year, the overall increase in rent prices has slowed, according to the most recent Beracha, Hardin & Johnson Buy vs. Rent Index. This combination of reasonable rent prices, availability of single-family homes to rent and a shortage of for-sale housing inventory, along with steep prices for those properties, could cause more households to rent for longer.
Homeowners are also finding that it now takes longer to recover the cost of buying a home compared to renting the same property, according to Zillow, as home price growth moderates in some markets, causing equity to build slower. Zillow’s national Breakeven Horizon, the point at which a home purchase becomes less expensive than renting, increased to 2 years and 1 month in Q1 2017 versus 1 year and 11 months in Q4 2016. The breakeven point tends to be longer in pricier markets like Los Angeles.