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Buy or rent: Limited supply making decision tougher

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A recent report said that rent prices have risen faster than mortgage rates, and a limited market is causing problems for many U.S. households. (Source: Wiki Commons/Dipankan001) A recent report said that rent prices have risen faster than mortgage rates, and a limited market is causing problems for many U.S. households. (Source: Wiki Commons/Dipankan001)

(RNN) – Those who are trying to avoid the burden of a mortgage are not finding much relief if they want to rent, according to a recent report.

Trulia, a company that provides data on the housing market, reported that rent prices rose at a faster pace than mortgages during the first half of this year.

According to experts, all the evidence points in one direction – rental property managers hold the trump cards in a limited market.

"Rents are rising, vacancies are falling, household formations are growing and rental supply is limited," stated Oliver Chang in Morgan Stanley report. "We believe the demand for rental properties will continue to grow."

The formation of renter households has surpassed new owner-occupied homes since 2007, according to the U.S. Census Bureau. The last time that happened was in 1985. An average of 718,500 renter households a year formed from 2007 to 2010, while owner-occupied households decreased at an average annual rate of 147,250 during the same period.

Trulia reported that rents across the nation were more than 5 percent higher in June than they were during the same month a year ago. San Francisco, Oakland, Denver, Miami and Boston reported the highest rental increases during that period.

Trulia's Chief Economist Jed Kolko said that those numbers would decrease as the backlog of foreclosed homes in those cities hit the market.

However, it seems builders are banking on the hope that people will continue to choose renting rather than buying, and they have good reason.

More than 4 million homes were lost to foreclosure from 2006 through 2011, and confidence in the housing market has only marginally increased in that time.

A Reuters report stated that construction of multi-family structures doubled from 2010 to 2011, and the percentage of Americans who owned their own homes last year dropped to a 13-year low.

The National Association of Residential Property Managers reported that its 3,400 members were twice as many as it had five years ago. The association based in Chesapeake, VA, offers professional support for rental property managers throughout the country.

Unsurprisingly, for an industry that is growing at such a quick rate, supply is falling short of demand.

Reis Inc., a New York-based real estate research company, reported that apartment vacancies dropped to a five-year low in the third quarter of 2011.

The economic blow has been especially hard on lower-income families.

The Obama administration delivered a report to Congress in 2011 that said only 32 percent of extremely low-income families had access to adequate housing. Those families are more likely to live in rental properties, according to the Census Bureau.

A Harvard University report released this year said 10.1 million households - 25 percent of renters - spent more than half their pre-tax income on rent and utilities in 2009, the most recent data provided in the study.

Renters should not spend more than 30 percent of their incomes on housing, according to the Harvard report, and higher-income families are not immune to that trend.

"It's a real squeeze for the lower-income and moderate-income families, and we're even starting to see it affecting middle-income families, too," said Erick Belsky, managing director of Harvard's Joint Center for Housing Studies. "The prospects for improvement any time soon are dim."

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