Consumers Expect Big Rent Hikes in 2012

By Steve Cook

Consumer sentiment on housing expectations is stabilizing as the year winds down and consumers are adopting a “wait and see” attitude towards 2012, according to Fannie Mae’s November National Housing Survey. However, on one front there is consensus: rents will rise significantly.

On average, Americans expect home rental prices to increase by 3.2 percent over the next year. Some 41 percent said rents will increase next year, 48 percent expect rents to stay the same and only 6 percent expect them to fall. The November numbers showed a slight retreat from October, when 43 expected rents to rise and 47 expected them to stay the same.

Consumer expectations for next year exceed the current level of rent increases. The average monthly rent for all categories, including apartments and single-family homes, was $846 nationwide in the third quarter, up 2.5 percent from the same period a year earlier, according to Local Market Monitor. Reis, Inc. data puts the third quarter increases at 2.3 percent year-over-year in the 80 plus markets it tracks. The National Association of REALTORS® forecasts multifamily rents to rise 3.5 percent next year, virtually what consumers expect.

Rising rents impact the homeownership markets in two ways. Monthly mortgage payments on the median priced home-including taxes and insurance-are increasingly falling below average rent levels. In 15 cities today, it is less expensive to rent than to buy, according to the Wall Street Journal. Higher rents also make investment purchases of residential properties more attractive. Increasingly, investors are buying to rent out properties for extended periods of time rather than selling.

Consumer home price expectations changed slightly in November, moving from negative to positive territory for the first time in six months, with respondents expecting home prices to increase by 0.2 percent over the next year.

“Though their home price expectations have become slightly positive, consumers remain concerned about the direction of the economy and continue to view their household finances as being relatively flat,” said Doug Duncan, vice president and chief economist of Fannie Mae. “Most Americans expect no improvement in their personal financial situation in the next 12 months and will likely remain wary about undertaking the significant financial obligation associated with homeownership until their view of their income, expenses, and job security heads in a more positive direction.”

Highlights:
• Twenty-two percent of respondents expect home prices to increase over the next year (up 3 percentage points since last month), while 22 percent say they expect home prices to decline, down 1 percentage point since last month. 53 percent say prices will stay the same, a 2 percentage point drop from October.
• Thirty-three percent of Americans say that mortgage rates will go up over the next 12 months, down 3 percentage points from October and a return to the level seen in September.
• Sixty-eight percent of respondents say it is a good time to buy a home (down by 1 percentage point since last month), and just 10 percent say it is a good time to sell, which is unchanged from the previous two months.
• On average, Americans expect home rental prices to increase by 3.2 percent over the next year, a 0.1 percent decrease from October.
• Just 6 percent expect a decline in home rental prices (unchanged since last month), while 41 percent of respondents believe that home rental prices will increase in the next 12 months.
• Thirty-two percent of Americans say they would rent their next home, while 63 percent say they would buy, down 3 percentage points since last month and a return to the level seen.

For more information, visit www.realestateeconomywatch.com.