How to Reliably Predict Rental Trends

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Rents Follow Prices

In real estate, prices and rents are determined by the imbalance between the number of buyers and sellers. When there are more buyers than sellers, prices rise until the number of buyers and sellers is balanced. On the other hand, when there are more sellers, prices decline until the balance is restored.

Rental rates follow prices. When home prices are high, fewer people can afford to buy, so they rent instead. This increases the demand for rental properties, resulting in higher rents. When prices are low, more people can buy. This decreases the number of renters, leading to a decrease in rent.

Where prices go, rents follow. Depending on the market, it can take 1 to 5 years for rents to catch up to price changes.

Primary causes of the lag between price changes and rents:

• Lease Term – Leases are usually for a year or more. So, changes in rent due to fluctuations in rental demand are delayed by up to a year.
• Practical Limitations to Rent Increases – The maximum rent increases tenants can accommodate is usually 8-12%, so it takes time for rents to catch up to current market conditions.

So, current price trends are an excellent indicator of future rent trends.