Rental rates gradually change over time. There isn’t an exact science to determine how much and when, but there are indicators that help guide the market in the direction that the tide is turning in.
RPM Iowa’s industry expert and leasing specialist, Caleb Schafbuch, has some insight as to how the rental rates may fall this upcoming year. Let’s look into it.
Will rates rise in 2021?
“There’s never been a better time to rent,” Schafbuch says. Vacancy rates are fairly low across the country, which means the demand for a place to live is higher. The requirement to be physically in the office has changed for a lot of companies due to Covid-19. According to a study by Stanford economist Nicholas Bloom, almost twice as many employees in the U.S. are working remotely.
“I can see interest rates going up… Which means investors will be paying more for the properties that they add to their portfolios,” Schafbuch proclaims. Interest rates are predicted to rise in 2021 because of multiple different factors. The Mortgage Bankers Association is predicting that the rates will rise above 3% in 2021. Why? Well, there’s a couple of components involved:
- Pandemic stimulus packages
- Inflation from commodity price increases
- Materials prices rising as the world surfaces from the pandemic
There are limited options for owners that are looking to add to their investment portfolios. “Resale isn’t as likely right now because the market is so sparse. There’s not much out there,” Schafbuch says. “Properties in established neighborhoods are a hot commodity right now. People will wait and pay more to rent a home in an established neighborhood because of the mature trees, unique backyards, and individualized home layouts.”
Resale isn’t the only way for investors and homeowners to have property. Des Moines and surrounding cities are developing quite rapidly. Bondurant, Altoona, Grimes, and Johnston are all expanding.
“New construction is more common and people are looking in developing areas. Good contractors are difficult to find, and new construction is getting more expensive. A majority of the market [real estate investors] are leaning towards townhome developments, apartments, and single-family homes in new neighborhoods.”
Leasing Specialist, Caleb Schafbuch
How does this affect rental rates?
To simply put, there is such a big demand in the market for both homeowners and investors. People are looking to own real estate, whether it be to upgrade their current living situation, to add to a portfolio, or become a first time home buyer. The demand is high but the supply is low because so many people are moving.
Evidently, investors will be adding a resale property that will be priced based on the current market. Monthly mortgage payments, both traditional and commercial, will be higher. This means that rental rates for these properties will be a tad bit more expensive. It’s best to lock in a rental rate that is more preferable to individuals while it’s possible.