Why Have Rents in Boston Gone Up?
Monthly rents in Boston have gone up in by more than 2.2% over last year.
The average monthly rent for the metro Boston area inside route 495 is $1,725 ¹ and in the city of Boston the average rent is about $2,548³. Boston is now ranked fifth in the country for the highest rents.
A combination of more renters and fewer rental units has contributed to the high rental rates.
More people are choosing to rent an apartment rather than buy a home for a few reasons:
They may have lost their job and can no longer afford their home. They may have lost their home to foreclosure. Or they are reluctant to buy a home because they fear home values will decrease. Some people have to rent after doing a short sale for about two years while people who are foreclosed on have to wait about 5 years until they can buy a home again. And some people can’t get approved for a mortgage so they are forced to rent an apartment.
Homeownership rates overall have dropped in the United States. According to the U.S. Census bureau, homeownership rates in the Northeast were 63.7% for the third quarter of 2011, compared to 69% in the U.S. for the same period in 2006.²
According to Reis, Inc., close to 6,000 new rental units are forecast to be delivered to the Boston metro area from 2011 through 2015. But even with this increase in construction, rental housing isn’t able to keep up with demand. More renters combined with fewer rental units equals higher rents.
The problem is, renters can expect to see rates continue to rise in the next few years.
Renting may be necessary until you’re ready to buy, but it is not a good long term financial plan.
For instance, the average home in Massachusetts sold for $359,553 in 2011. At the current 30 year fixed interest rate of 3.75%, the monthly payment would be about $1,976, compared to $2,089 for the average rent for the city of Boston.The fact is in some communities in Massachusetts, homeownership is actually cheaper than many rentals in the Boston area.
In fact, if you stay in your home 6 years, you’ll save on average about $2,553 each year compared to renting. Even if you rent in the metro Boston area inside 495, where the average monthly rent runs around $1,686, you will still save about $891 each year.
Homeownership offers the advantage of building equity. And unlike renting an apartment, you know your monthly mortgage will stay the same for the life of the loan. Rents can go up as high as the landlord wants.
There is talk from the government about turning some of the foreclosed properties into rental housing, but it could be some time before this happens. And we doubt it will happen in Massachusetts.
In the meantime people interested in buying a home should take advantage of these historic low interest rates because they won’t stay at this low for long.