Rent increases seem to be the norm rather than the exception in the Columbia SC housing market. While increases affect renters at all income levels, those near the bottom are being hardest hit.
Rent Inflation Affects Columbia SC Housing
Higher rents are having a greater impact on the lower-cost housing units than on the higher-cost units say researchers for the Federal Reserve Bank. They reviewed national data compiled by the American Housing Survey from 1989-2013 to estimate the rate of inflation for rents and utilities. Their findings concluded around 32 million dwellings were constructed during that timeframe. Roughly 10.8 million were built to be marketed to the highest income earners, compared to only 3.1 million targeting the lowest income group.
The researchers further conclude increased numbers of new units attracting high-end earners is likely responsible for higher vacancy rates. Less competition among tenants helps mitigate rent inflation in that income group. Despite rents being higher for those new units, as a percentage it usually doesn't rise as much as the lower-cost rental units. The reason? Supply of rental units at the lower end of the spectrum is more apt to occur from rents that were once higher, but have been lowered into the next bracket. The result is a "trickle-down" effect, meaning those units will probably still have higher rents than the lower-end housing, pushing up rent inflation for that segment.
During 2011-2013 rent inflation in the lowest bracket represented in the data was roughly 16%. Inflation in the highest bracket was -.4%.
This comes as little surprise to renters in the Columbia SC housing market. Annual rent growth during September was 5.2%, representing the highest increase since 2011 and marking the eighth consecutive month the rate has been 5% or more.
Based on a nationwide survey by property rental website Rent.com, property managers expect to raise rents as much as 8% next year. This is due to an anticipated rise in demand and a drop in vacancies. Vacancy rates for rental units across the nation recently dropped to 6.8% — the lowest in twenty years.
Further affecting the rent inflation dilemma is that construction of multifamily housing came to a surprising halt during the housing crisis. New units recently added are barely meeting pent-up demand. Rents and occupancy levels are enjoying all-time highs, driven in part by higher demand and lower supply. While new construction permits for multifamily units are within 1% of where they were during the same month last year, most of the new supply is in higher-priced markets. The urban centers of major cities have benefitted, but not renters in suburbia or in less-populated cities desperately in need of more affordable rental units.
Columbia SC housing experts say more than 25% of renters currently spend over 50% of their income on rent.
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The US Commerce Department reported that sales of new single-family homes dropped to a near one-year low last month. The recent setback occurred despite two consecutive months of sales gains. Industry experts say Columbia SC housing remains on firm ground thanks, in part, to a rise in home prices.
A Closer Look at Columbia SC Housing
The 11.5% drop in new-home sales was the lowest since November 2014. While the new-home sales news is less than encouraging, it has some housing insiders scratching their heads as other reports show a brighter outlook for the new-home sector of the Columbia SC housing economy. One explanation for the downturn is that new-home sales can fluctuate on a month to month comparison because of small sample extractions.
One housing industry expert labeled the recent new-home sales data “unreliable,” claiming that a number of other indicators pointed to continued steady growth in the sector. Recent existing-home sales data and moderate-to-strong housing starts are among the reasons the Commerce Department report could be an anomaly. In addition, the median price of a new home rose 13.5% in September from last year, reaching a high for 2015 of nearly $297,000.
The increase in home sales prices would indicate either a change in the number of more expensive houses, or that builders are raising prices on their product offerings. Soft demand, therefore, would go hand in hand with slower price gains.
A good Columbia SC housing market continues to support growth in overall consumer spending resulting from higher household income and wealth. The US economy reported growth of 3.9% in the second quarter of 2015. Economists previously predicted new-home sales falling slightly, but only to a level of 550,000 units. The seasonally-adjusted level was actually 468,000 last month. However, sales increased 2% compared with September of 2014.
The new-home supply in the Columbia SC housing market lags behind the most recent housing boom total, with inventory being less than half of what it was at that time. Using the pace of September’s sales data, the new-home supply would take 5.8 months to fully clear, up from a 4.9 months estimate during August.
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Indirectly addressing concerns that the current Columbia SC housing market — among others across the nation — is destined to suffer the woes of the housing collapse of less than a decade ago, Former Federal Reserve Chair Ben Bernanke recently shared his thoughts on the subject.
Has Columbia SC Housing Learned a Lesson?
Bernanke said there were a number of factors that led to the housing bubble and the 2008 financial crisis. He has been quoted as saying "financial regulatory supervision should be the first line of defense against asset price bubbles and other risks to financial stability." While the Federal Reserve was largely criticized for their monetary policy prior to the crisis, Bernanke contends the policy wasn’t the main reason for the housing bubble. If anything, the Fed may not have done enough to regulate mortgage lending at the time.
He cited growing political support during that time for sub-prime lending as a means to provide the “American Dream” of home ownership. The positive end, therefore, justified the questionable means. And while government regulators were adamant in their efforts to get rid of predatory lending they turned a blind eye toward other bad lending practices. As a result, the Columbia SC housing market suffered greatly.
Bernanke seems satisfied that a number of specific shortcomings were addressed as a result of the housing bubble and ensuing collapse. In fact, he says, some people feel that mortgages are too hard to get — an “overcorrection” has resulted in trying to prevent a recurrence of the past. Yet he contends the financial system is stronger and banks and other lender capital is higher, creating a more resilient system than before.
Columbia SC housing is obviously affected by interest rates, and recently, the much anticipated rate hike by the Federal Reserve was once again put on hold because Fed Chairwoman Janet Yellen said she thinks the housing market is still not where it needs to be.
Jeff Taylor of Digital Risk appeared on Fox Business News after Yellen's comments about the housing market being depressed or distressed, countering her assertion that the housing sector is depressed, citing that housing indicators are at all-time highs.
Many in the Columbia SC housing sector have actually been hoping the Fed WOULD raise interest rates. Taylor points out some of the reasons why this thinking actually makes some sense…
Stay abreast on what the Fed does in the future with interest rates by continuing to follow us on Twitter and Facebook. We post daily there. Also stay abreast of the Columbia SC housing market by checking here frequently for more up to date news as it affects Columbia SC housing.
The Columbia SC housing outlook continues to remain positive. The Commerce Department released information confirming that the sales of newly built homes rose more than 5% in July. In addition, prices for new homes were up. Homebuilders cite two reasons for the recent higher traffic and sales activity:
1.) The much anticipated rate increase by the Federal Reserve
2) Lower new construction home prices to more closely match mortgage demand
Columbia SC Housing Market Could Cool Down
Despite this summer's success, some analysts warn that recent market volatility may be creating a slowdown in the Columbia SC housing market. Some homebuilders aren't quite as bullish on the remaining months of 2015.
The recent instability in the global economy — specifically China's stock market woes — has made the expected rise in the Federal Reserve's federal funds rate less likely. While on the surface that's a good thing, Columbia SC area housing experts fear the lack of movement in rates will result in a reduced sense of urgency in prospective homebuyers.
Home prices have remained relatively high, too, buoyed in part by the regained consumer confidence in the stock market after a shaky week following China's record market plummet. Despite expected rates remaining unchanged, homebuilders say consumer caution will trump interest rates.
Ironically, a rise in interest rates would potentially have given the Columbia SC housing market a boost. Historically, such an event signals an end to the "good old days" as homebuyers move to finally purchase before rates increase further.
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