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Article posted on 11/30/10
Author: Kelly Curtis

Economists Theorize Rising Rents Will Boost Housing

A recent trend in commercial property is providing hope for the residential market down the road, according to a number of housing analysts. Demand for apartments is on the rise, and supply has fallen to very low levels. In fact, net absorption nationally increased by 84,000 units in Q3, which pushed vacancy rates down to 7.2 percent, according to a recent report from Reis.

Overall rents have grown by just 0.6 percent across the nation, but in larger markets the gains have been decidedly more pronounced. A report from Prudential Real Estate Investors theorizes that this has been caused by favorable demographic trends, an ongoing shift to renting, and rising household formations. The report theorized that a slew of "echo-boomers" reaching the prime renting age, together with an improved job market, will likely produce an estimated 5 million new renter households over the next five years. The increased demand will likely force rent rates up, as there is not nearly enough supply for the increased demand.

Lawrence Yun, the chief economist for the National Association of Realtors predicts that rents will rise one to two percent next year, noting that the multifamily housing sector is the one real estate area that has performed relatively well over the last year, and should be the top-performing sector in 2011.

The question is, will rising rents be enough to push people into home ownership. The Commerce Department reported last week that mortgage application rose, even as mortgage rates are rising. The report, combined with several other positive indicators over the last two weeks, have economists believing that consumer confidence is riding an upward trend.

On the other hand, Fannie Mae's National Housing Survey, released last week, showed Americans are still very unsure about the housing market as an investment vehicle. In fact, the survey showed more Americans think it's a bad time to buy than during the first half of the year.

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