Renters drive real estate value

Millennials are now in the age range to consider purchasing a home, yet most are opting not to. With the last economic crash, a lot of millennials, who were first time homeowners, got foreclosed upon and lost their home. This makes them scared to enter the market. Ironically, The enactment of the dodd frank act to protect the same consumers against these dirty practices has made it  for much more difficult for the same people to get a loan or buy a home. Many renters are interested in areas of high walkability which makes it nearly impossible to own, forcing people to rent.

With so many renters, there has been a huge increase in the rents. Pasadena has experienced the greatest year over year rent somewhere between 8-12%. Last year, a 2 bedroom that was $2,000 at the beginning of last year would likely be on the market for close to $2,500 this year. Even older studio units in prime Pasadena are renting for over $1,600. How can anyone afford to rent or buy a place? Renters are often spending more than 30% of their income on rent, making them very cost burdened. Census data, adjusted for inflation from 1960-2014 show that rents have gone up 64%, however, average household income has only increased by 18%. More than 50% of renters are spending more than 30% of their income on rents. At some point, renters will not be willing to go any higher on rent and we should see the prices stabilize. In the bay area, the vacancy rates of luxury apartments have gone up which could potentially be a sign that we are reaching a stabilization point in investment real estate prices.

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