2022 Rental Market Analysis: Why Are Prices Expected to Rise

Technology is instrumental in managing your real estate investments. However, proper knowledge is more crucial than using the latest tools. Investors who understand the latest market trends can quickly adapt or plan for their business. Considering the recent trends unfolding in the industry, a thorough overview would undoubtedly be helpful. Hence, this article focuses on the 2022 rental market analysis. If you want to know what experts predict a price rise, stick around till the end. By the end of this article, you’ll better understand the forces at play in the real estate market.

Status of the Current Rental Market

Excess Demand

One of the most apparent features of the current rental market is a mismatch between demand and supply in the housing market. There’s now a soaring demand for houses that aren’t available. This shortage is partly due to the pandemic that significantly slowed down construction. While building projects are now up and active, unfortunately, many of them are still a long way from meeting up with the needs of the population.

Shift to Rentals

A ripple effect of the excess demand for housing is a shift to rental. Many people can’t afford to take on a mortgage with prices constantly increasing. In 2021, the average cost of an SFU grew by 7%, with some states weighing in at 30% or more. With the Federal Reserve withdrawing its support and letting mortgage rates rise, we can only expect loans to become more expensive. Thus, many wishful buyers have no choice but to become renters.

Mass Migration

Since the pandemic, many businesses have opted for a hybrid or utterly remote approach. As a result, more people are moving out of the pricier city centers toward more affordable suburbs. Of course, any landlord that knows how to maximize ROI is increasing their rental rates to meet the increased demand.

What is Price-Value Relationship

In every sale or business, price and value have an intricate relationship. Price is an objective fact that refers to the money a buyer is willing to pay for a house. On the other hand, value is a subjective measure of the worth of a purchase. While people sometimes use these two words interchangeably, they are different concepts investors must take note of. Generally, a successful investment is one where the value is greater than the price. However, with rent prices soaring, it begs the question, when will rent prices go down? And also, how do you secure a positive price-value relationship?

Appraisal Methods

Sales Comparison Approach

This approach is more common for property owners of SFUs and empty lots. It involves comparing at least three to four similar properties sold under normal market conditions in the last year.

Cost Approach

Since no two buildings are precisely alike, the sales comparison approach puts property owners in a tricky spot. However, the cost approach assumes that no one should buy a house worth significantly more than the cost to buy a similar plot and construct a comparable building.

Factors that Determine Rent Pricing

Location

Location is a significant determinant of rental prices. Many other factors feed off a property’s location, such as the value, the proximity to amenities, ease of transportation, tourist spots, etc. The closer a property is to conveniences, the more attractive it is, and thus more expensive.

Property Value

Property value is often a determinant of what type of housing you own. For instance, single-family units are significantly costlier than multi-family units or condos because of the extra space and privacy. However, you can also take up strategic renovations to improve your property’s ROI and increase your rent.

Property Amenities

Tenants are often willing to pay extra for more convenience. So if your property has amenities such as private parking, reliable WiFi, washer/dryer, you can charge higher rent. Also, if you don’t provide these and your competition does, you could lose out in the housing market.

Housing Demand

Finally, housing demand also influences rental prices. When demand exceeds supply, rental rates shoot up, and vacancy rates drop. However, when supply outstrips demand, rental rates drop as vacancies climb.

Conclusion

Understanding real estate trends is essential to building a successful business. As discussed above, we can quickly pinpoint why prices are expected to rise between excess demand, a shift to rentals, and mass migration to the suburbs. Given these facts, property owners must set their rental rates at a reasonable level. Factors that determine rent pricing include location, property value, amenities, and housing demand.

Although, you also have to ensure that the price you pay for a property is at least equal to or less than the value. The sales comparison and cost approach are suitable appraisal methods you can use. Do you find any of these overwhelming? Besides knowledge, it’s always a good idea to invest in the right help. An experienced property management company can put you through the latest market analysis and help you make complicated decisions that boost your business.