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Why rent prices are cooling down

A recent surge in apartment construction has added to the supply of existing rentals and left landlords scrambling to fill vacancies.

The number of completed apartments across the country climbed 7% year over year in the third quarter to 1.2 million, one of the highest levels in the last 30 years, reports Redfin.

The excess in supply has meant the rental vacancy rate has also risen to 6.6%. Renters now have more options to choose from, which has led some landlords to slash their asking prices, or offer signing incentives, like free rent for the first month or reduced parking costs.

That said, although asking rent prices might be falling, they’re still about 22% higher than they were in November 2019, prior to the pandemic housing boom, Redfin notes. And they’re only 4.2% below the $2,054 peak reached in August 2022.

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Is it cheaper to buy or rent?

In a time when even wealthier households are opting to rent instead of buy, you might be wondering whether the dream of homeownership is over for you too.

Jeseo Park, economist at Bank of America, wrote in a recent research note that although the costs of rent and homeownership might take up more of your income than they used to, renting is still more affordable than buying a home today, according to a report from Yahoo! Finance.

Across the country, Park says rents have lifted from 23% to 26% of the median U.S. household income, while the ratio of mortgage payments to income has accelerated from 19% to 32%.

“Overall, the data clearly point to a housing market that has become more burdensome on the average buyer than pre-pandemic, and it may take some time to return to a new supply and demand equilibrium,” Park wrote.

However, homeownership could become more affordable next year, experts say.

The fixed rate on a 30-year mortgage has already tumbled below 7% once more and Redfin forecasts new listings could increase next year as well.

You have other options when it comes to investing in real estate

But waiting until the market cools enough to dip your toe isn’t the only way to get into real estate.

These days, there are countless opportunities for eager investors. Take prime commercial real estate, for example, which has outperformed the S&P 500 over 25 years. Some platforms even allow accredited investors to own shares in institutional-quality properties leased by brands such as CVS and Walmart.

Or you could look into a real estate investment trust (REIT), which is an entity that allows you to earn returns from multiple properties at a time without owning them yourself. They’re similar to a mutual fund, except REITs own and operate properties that produce income, such as apartment buildings and shopping malls.

You’ve got several options available to you even while you rent — plus, investing now could pay dividends for when the homebuying market does feel within reach.

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About the Author

Serah Louis

Serah Louis

Reporter

Serah Louis is a reporter with Moneywise.com. She enjoys tackling topical personal finance issues for young people and women and covering the latest in financial news.

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