Rents Could Be On The Rise

Renters Beware: Double-digit rent hikes may be coming soon.

Already, rental vacancy rates have dipped below the 10% mark, where they had been lodged for most of the past three years.

By 2012, some are predicting the vacancy rate will hover at a mere 5%. And with fewer units on the market, rental rates will explode.

Rent hikes have averaged less than 1% a year over the past decade, according to Commerce Department statistics, adjusted for inflation. Now, rents may spike 7% or so in each of the next two years — to a national average that will top $800 per month.

This is a sharp change from the recession, when many Americans couldn't afford to live on their own. More than 1.2 million young adults moved back in with their parents from 2005 to 2010. Many others doubled up together.

As a result, landlords had to reduce prices and offer big incentives to snag renters.

Now that the recession is easing, many of these young people are ready to find new places, mostly as renters, not owners. Plus, the foreclosure crisis continues unabated, and the millions losing their homes are looking for new places to live.

There's one factor that could actually rein in rent increases: the huge number of foreclosed homes that could hit the market over the next few years.

In many markets there are neighborhoods filled with recently built, single-family homes going for fire-sale prices. When the cost of owning homes falls well below the costs of renting them, more people will buy.

Stay tuned, this should be an interesting ride for rental rates and home buying trends.