Rent Prices Keep Rising. Will They Ever Fall?

Throughout the entire country, people are experiencing rising rent prices. You’re probably paying more for monthly rent than you ever have, and there are indications that this trajectory will continue, pushing rent prices even higher.

There are always popular areas in the United States where rent prices consistently increase, but to see such widespread increases across the board is quite rare. Why do rent prices keep rising and will they ever fall again?

Why Rent Prices Keep Rising

There are many factors coinciding to keep rent prices high.

These are among some of the most important to recognize:

·       Rental property popularity. First, we must acknowledge how popular rental properties have become as prospective investments. Rental properties give landlords the opportunity to make a monthly cash profit in ideal circumstances, while simultaneously equipping them with capacity for generating more equity and capitalizing on long-term appreciation. Property management companies make managing rental properties even easier, turning them into practical, passive income sources that anyone can take advantage of. This has sharply increased demand for rental properties, pushing prices higher and forcing landlords to increase rent to accommodate those higher prices. Of course, this doesn’t explain why those price increases are so sustainable.

·       Record low interest rates. It doesn’t help that interest rates were slashed to nearly zero during the COVID-19 pandemic. In an effort to combat the economic distress sustained during the pandemic, the Federal Reserve decided to instate easy money policies. This greatly reduced interest rates associated with mortgages, which caused millions of investors and prospective home buyers to flood the market. This pushed house prices much higher, caused inventory shortages, and shifted homebuying dynamics overall. Now, all those people with locked in, low mortgage rates refuse to sell their houses, making inventory problems worse.

·       Diminishing inventory. We’ve already covered a couple of factors keeping inventory levels low. In general, people are reluctant to sell their homes, driving up both housing and rent prices and forcing more people to stay renting. Making matters worse, new construction rates have slowed to a crawl, meaning there’s little relief in sight.

·       Urbanization and centralization. Additionally, we’ve seen a trend toward more urbanization and centralization. People want to live in big cities with other people, forcing rents higher in those areas. Rent prices have remained mostly the same or even lowered in some remote pockets of the country, but that’s because very few people want to actually live there.

·       Demand for luxury properties. Similarly, people are increasingly demanding luxury properties. They want more appliances, more modern fixtures, and more luxurious options. Necessarily, these properties are much more expensive than their older, more worn counterparts.

·       Price inflation. Generalized price inflation is also to blame. Those low interest rates, along with quantitative easing, flooded money into circulation, ultimately increasing the money supply and diminishing the value of money. This is why inflation has recently reached record highs, and why your dollar doesn’t go as far as it used to. Rent price increases can be partially attributed to this general inflation.

Could Rent Prices Ever Fall?

Is it possible for rent prices to fall in the future?

In short, yes, but one or more of the following must be in play:

·       New construction. One way to solve this issue would be to make new housing available, thereby easing supply issues and catering to existing demand. That would require a massive influx of new construction and new properties, which not everyone desires.

·       Deflation. The opposite of inflation is deflation, when the money supply shrinks and the value of money goes up. Unfortunately, we will probably never experience deflation in the United States – at least as long as the Federal Reserve remains in charge of the money supply. That’s because inflation is perceived as a good thing for economic growth, despite the pains it introduces to average consumers.

·       Population decline. A decline in the population could cause enough stagnation and demand that rent prices begin to fall. The United States is already experiencing declining birth rates, but right now, that’s counterbalanced by relatively high immigration rates. If both immigration rates and birth rates decline, we can expect population decline to follow. However, there are also significant problems associated with population decline, so be careful what you wish for here.

·       Shifts in living preferences. We could also see falling rent prices in response to shifts in living preferences. For example, if people become more willing to move to rural and isolated environments, if they accept lower-quality housing, or if they start living with family and friends, demand will fall, and so will rent prices.

Without some kind of external force applying pressure on the situation, rent prices are likely to remain high and possibly climb even higher. It’s not the news most people reading this article want to hear, but it’s the reality of our present situation.

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