Rents set to skyrocket this summer in the Sacramento region.

Do you rent an apartment or home in Sacramento? Well get ready, because what you pay every month is about to rise like the thermostat this summer. The capital city of California is set for a massive, across-the-board rent increase in the last two quarters of 2015 and beyond. This isn’t just a matter of speculation, nor is it a function of individual landlords acting out of greed or whim – there are a handful factors in play that will absolutely force our rents to the highest points they’ve ever been.

The good news is that real estate prices are still reasonable, interest rates good, and new bank programs are making it easier to buy a home once again. So if you’ve been renting, it may be time to finally take the first step toward owning your own home. If not, you’ll likely be paying way more in rent.

The data on rising rents:

The average U.S. rent has climbed an astounding 14% since 2010, according to Reis Inc., a property-tracking firm.

To put it in perspective, that increase is four percentage points higher than the rise in inflation and twice the increase in U.S. home prices. In the past, renters counted on spending about 25% or less of their income on rent, but now that number is usually 30% or more.

Rents are rising fast across the country in 2014 and now 2015 in metropolitan areas like Denver (+10.2% in one year), Portland (+7.2%), and Austin (+7%). But rents are increasing the most in California cities like San Francisco, who’s already-pricey cost for rental property rose by 14.9% over this last year, Oakland, where rent went up by 12.1%, and now, Sacramento.

In 2015, rents are expected to rise somewhere between 3.4% and 5.7% nationally, most of those increases coming during the summer or fall. New renters will pay the most, while rent renewals will get a slight break with a smaller increase.

Sacramento rents will rise even faster than the national average.

Sacramento rents are expected to increase at a much higher rate than the U.S. average, piggybacking on the 2014 increase of 5.4%, which ranked it #10 on the list of all cities in America.  It’s not out of the realm of possibility to see average rents to increase by 5% -10% or more through the summer and fall of 2015 and the winter and spring of 2016.

There is a big price break between apartments and single-family residences, but the numbers play out across the board. The average rent for an apartment is right around $1,087.

And when you factor in single-family homes, the average rent for a Sacramentian is $1,397 as of the first quarter of 2015. If you include the entire Sacramento metropolitan area, including communities like Rocklin, Roseville, Elk Grove, Folsom, etc., then the average rent is $1,653.

So if with a 5%-10% increase by this time next year, those rents will jump to $1,141-$1,195, respectively, for apartments.

For single-family homes, that same rental appreciation will yield $1,466 - $1,536 average rents in Sacramento proper.

In the greater Sacramento metropolitan area, single-family homes will rent for an average of $1,735 - $1,818.

That’s great news for landlords (who will collect more rental income), homeowners (who don’t have to pay rent and will benefit from appreciation), and new home buyers (who will get in the market at the perfect time.) But for those who rent an apartment or home, the financial burden of having a place to hang their hat will become more significant than ever.

What’s causing upward pressure on rents?

Homeownership is at the lowest level since the early 1990s.

Since the Great recession and financial crash, home ownership rates have settled at 19-year lows of only 64.4%.  People are reluctant to buy again and get burned, have trouble saving down payments, and Millennials are opting to rent at record numbers. Less homeowners mean more people are renting, increasing competition and demand.

Less people have roommates or are living at home.

During the recession, hard times caused a lot of people to move back home to live with their parents, combine households, or take on roommates to help pay the rent. As of 2012, 42% of U.S. adults were living with roommates or family, up from 27.4% in 2006. As the economy has rebounded, those numbers are normalized, which means more people who want to rent their own place.

Positive employment numbers.

Recent job numbers have been strong, with about 2.8 million more Americans now working compared to only a year ago. More employment means higher incomes and more renters.

Sacramento’s paltry new construction numbers.

In other areas of the country, new housing starts have regenerated to pre-Recession numbers. But in Sacramento, new construction has been near nonexistent. In fact, almost no new apartment projects have been built in Sacramento since the last big wave of construction in the early and mid 2000s. Back then, developers built around 2,000-4,0000 new apartment units in Sacramento every year. But at the low point, in 2010, only 123 new units were built. There are currently about 1,500 units being built but that still doesn’t make up for years of almost no new housing, and many developers are opting for high-end condos now instead of standard apartments. As there are more and more people living in the area, demand has exploded but supply is stagnant.

 Vacancy rates have fallen.

Vacancy rates in the greater Sacramento region have reached record lows of 3.8%, all the way from a high point of 6.7% in 2012. 3.8% is the lowest vacancy rate in 25 years of tracking the statistic, and gives huge leverage to landlords and apartment owners to raise rent and take the best possible tenants.

Bigger water and energy bills.

Many landlords and apartment owners are paying higher property tax rates as their appreciation increases, and have higher energy and water bills, which are expected to possibly double over the next year or two. Rents will increase in anticipation of those rising costs.

Institutional investors are squeezing their rental portfolios.

This is one of the biggest factors why rents are set to explode in the Sacramento region. For years, the area was considered a bargain for big money investors from other parts of California, who scooped up apartment buildings, commercial centers, and blocks of foreclosed single-family homes. Now, they are shifting strategies from acquisition to milking those investments for performance, i.e. raising rents to make a large profit. That will have a profound effect on the rent levels in the area in the summer and fall of 2015.

7 Things ever renter should know (to help them become first time home buyers.)

There’s a great saying about home ownership, “Everyone pays a mortgage every month and everyone buys a house, it´s a matter if it´s yours or your landlord’s.”  That couldn’t be more true when we think about it, because over a lifetime of paying rent, whether it’s in an apartment or house, your money is going to pay for the landlord’s investment. Of course renting is right for some people based on their financial situation and housing needs, but there is a huge number of renters out there who would love to achieve the American Dream of owning a home, but they just aren´t sure how to get started or they have reservations. So we put together a list of seven things every renter should know about home ownership, which could very well turn them into first time home buyers!

Rents are going up.

After the real estate crash in 2008, it was an extreme buyer’s market, with investors a large part of those who scooped up foreclosed and distressed homes to rent them out. Since then, there’s been a profound shortage of affordable apartments, condos, and houses, particularly in popular metropolitan areas. Rents have risen steadily over the last few years and experts are calling it one of the biggest imbalanced rental markets ever. That means what you spend on rent every month has probably gone up and probably will go up again.

In fact, these days, most first-time home buyers are purchasing their home and spending less than they did for rent!

You’re missing out on tax deductions.

The federal government long ago decided they didn´t want to be in the business of housing the American people, so they instituted generous tax breaks for private real estate owners. Owning a home is still one of the best tax breaks you´ll ever get. In fact, the interest you pay on your mortgage is tax deductible, as are a lot of repairs and upgrades, meaning you keep much more of your hard earned paycheck in your pocket. And when it´s time to sell your home, there are generous tax laws that allow you not to pay proceeds on the profit up to a certain point if you´ve owned it two years. Consult your CPA or tax professional for specifics, but he or she will most certainly encourage you to buy your own home!

Interest rates are still low.

Too often, potential homebuyers are confused or scared by the news about interest rates and the economy, and that causes them to not act. They even have a term for this, ¨paralysis by analysis. ¨  But it´s important to realize that interest rates are near historical lows, and even if they move up a point or so in the next years, they are still great. In fact, the average mortgage interest rate since WWII is about 7.5%, so our current rate climate is fantastic. Additionally, when rates are high, home prices usually are trend lower and vice versa, so there really is no wrong time to buy as long as you do it correctly and can afford your mortgage.

There are programs to help first time homebuyers.

There is no denying that buying your first home (and getting your first mortgage) can be a confusing and overwhelming process with a steep learning curve. But it’s important to know that there are so many resources and places to get help for first-timers. Many banks and lenders have special programs for first time buyers, and governmental agencies like FHA, the Federal Housing Authority, specifically try to aid new buyers. In some locations and markets there are even grants or down payment assistance programs, so one way or another, you probably will have to invest way less than 20% for a down payment, and all of your questions and concerns will be addressed.

You’re only making your landlord money.

If you add up the financial advantages of owning a home versus renting, the numbers make a clear case. Think about two homeowners over a 5-year period, one who rents and one who buys a home. The renter paid, let’s say $1,200 a month for 5 years, or $72,000 toward their housing.

The homeowner paid the same thing, $1,200 a month, over 5 years for a similar sum, $72,000.

But the homeowner got tax breaks every year for paying that mortgage, paid down principle on the amount he or she owes (though it is slow in the first years,) and the value of his or her home may have gone up.

Now extend that over the long term – 30 years. The renter is still paying rent every month with nothing to show for it, though that $1,200 has probably gone way up. But the home owner paid off their home and pays $0 toward mortgage every month, and the value has certainly skyrocketed, allowing them to retire early, leave it to their children, etc.

Your landlord understands the power of real estate as an investment, and loves it that you rent instead of buying your own property for these reasons.

Owning your own home is one of the smartest financial moves you can make.

Among millionaires and financially successful people, 95% attribute owning real estate as a contributing factor. In fact, owning your own home and possibly investment properties is one of the most well traveled paths to financial independence. Between the tax breaks, paying off a mortgage over time, and appreciating values, it’s hard to fathom why more people don’t buy their home.

Of course you should own stocks, plan for your retirement, own a business, etc. to achieve wealth, but having your own home is so fundamental that it’s really the cornerstone of your financial picture.

Over time, houses always appreciate.

There are very few “sure things” in life and even fewer in business, but real estate always goes up in value once you hold onto it long enough. Of course there are market swings and fluctuations, real estate booms and then corrections, but the beautiful thing about owning a home is that you don’t realize that loss unless you sell during that time – you can just wait for it to go back up in value. And over the history of real estate in the United States, there has never been a decade where houses haven’t appreciated in value. As they say, there are more and more people every day, and they aren’t making more land, so the best investment on earth…is earth – your own home!