A very dear family friend my age discussed his rents with me over the phone this morning.
The inflation rate is very high. He can not see the future. He is very particular that he is not an economist.
He has over 6000 units in our region his management company oversees.
Telling me a kitchen that cost $2200 cabinets to install now costs $3300. That is true of everything. NG is at a high.
He goes up by roughly $50 per month. That of course is varies. At $50 that is $600 per year.
With the pandemic he did not go up in 2020 because he had no idea what would happen etc…This is important because it backloads the rental inflation into 2021. In May 2021 he upped his rents. But that was as the leases came up for renewal. It is ongoing.
If he has problems with someone, not necessarily missing rent payments, he may not renew the lease. In such a case if the rent was $1100 he could go to $1250, but will only go up $50 considering the balance of things in doing business.
$50 on $1100 is 4.5%
The part that is not ending is the staggering of the leases in time.
He is very keen to point out all of his costs have gone up considerably. He does not know when that subsides.
Wendy last week posted a study of rental inflation. Correct me if I am wrong, but I believe it was stated that home ownership is also broken down in the Labor Dept report into rental values.
“Values” is problematic in such a study because the leases have to come up for renewal for the actual prices to rise, but in the meantime the “values” have risen.
Wendy’s discussion was that the stats were averages that would subside later on as an average would. But if values are used to compile the inflation rates and not the actual older lease figures then the inflation figures are front loaded. Meaning the averages stabilize sooner even as leases come up for renewal.
The part that is not ending is the staggering of the leases in time.
Last month I pointed out that one of the “baked in” components of future inflation is rent. They are not increased until renewal time, and there are a lot of annual increases yet to come.
They are not increased until renewal time, and there are a lot of annual increases yet to come.
Tenants have an option: move. The apartment complex I was in around 80 raised it’s rent too far in one jump, and people took off out of the place like it was on fire. I did a count of empty windows and it looked like about a 40% vacancy rate. iirc, rent rates demanded came back down.
If the Labor report was going by rental values then the raises have in larger part been baked into the prior inflation numbers. If the Labor Department goes by actual rental rate receipts then inflation will be going on throughout this coming year at a steady rate.
Part of the report as Wendy provided was that home ownership was figured on a rental value basis for inflation. Value v actual rate. As part of the market goes up the value is re-calculated.
If the Labor report was going by rental values then the raises have in larger part been baked into the prior inflation numbers. If the Labor Department goes by actual rental rate receipts then inflation will be going on throughout this coming year at a steady rate.
www.brookings.edu/blog/up-front/2021/06/28/how-does-the-gove…
In the housing survey, the BLS collects the prices of 8,000 residences through personal visits or telephone calls. If a housing unit isn’t rented but is owned by the resident, they use what is called the owners’ equivalent rent: the BLS finds what it would cost the owner to rent a similar place and uses that as the price for housing instead. Since rentals do not change frequently, the rent of each unit is sampled every six months, allowing the BLS to survey more houses overall.
Telling me a kitchen that cost $2200 cabinets to install now costs $3300. That is true of everything. NG is at a high.
And lets not forget property taxes, which is based on valuation. Since the values of real estate has increased so significantly, we have seen and can continue to expect large jumps in property tax. That of course gets passed on to the tenant.
“Values” is problematic in such a study because the leases have to come up for renewal for the actual prices to rise, but in the meantime the “values” have risen.
In many locations the rent you can charge is dependent on time of year rented. We turned our previous home into a rental in August, possibly the worst time in a college town if one is not looking to rent to undergrads. We gave the tenants a lease that ended in May so we could get in the proper high value rotation, when new professors, law students, medical interns and nurses would be wanting to start a lease. This can complicate the rent value data collected.
We looked at selling our rental this year, but between values still expected to rise in 2022, albeit much slower, rents escalating, and a lack of good value opportunities to invest proceeds of sale, we are going to hold on to it.
And lets not forget property taxes, which is based on valuation. Since the values of real estate has increased so significantly, we have seen and can continue to expect large jumps in property tax.
Can be more complicated than that. In the state of Washington, each jurisdiction’s property-tax revenues can go up by only a certain percentage each year. So if in one year every property in the jurisdiction got a new tax appraisal doubling its value, the tax rate for that jurisdiction would be approximately cut in half.