How to Reliably Predict Rental Trends

[Eric Fernwood]

Property prices and rents are both driven by supply and demand.

• If there are more sellers than buyers, prices will fall.
• If there are more buyers than sellers, prices will rise.

If prices rise, fewer people can afford to buy and will be forced to rent. Demand for rental properties increases as will rents.

If prices fall, more people will buy so fewer people will rent. Demand for rental properties decreases as will rents.

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.