Rents, Wages and Inflation
Rents are rising. How high can they go?
Here in Kansas City we are beginning to feel a real ceiling in many of our price ranges around the metropolitan area. Ashely, our Leasing Director at Ad Astra Realty, Inc property management is showing me conclusive evidence that fewer of our prospective tenants have the income to qualify and that many who do have solid income have sketchy credit. Some of our reliable tenants are beginning to show signs of financial stress; late payments and even making payment arrangements.
June 2022's CPI rate was 9.1%. July dropped a bit to 8.5%. Gas prices had been coming down. This week they shot back up, significantly.
Trips to the grocery store are costing substantially more. Yesterday I received a notice from Atmos Energy, our natural gas provider, that they expect prices this winter to be up more than a bit.
ABC News says Inflation and wage data suggest US prices will keep climbing.
Employees’ wages, excluding government workers, jumped 1.6% in the April-June quarter, matching a record high reached last fall. Higher wages tend to fuel inflation if companies pass their higher labor costs on to their customers, as they often do.
No matter how you slice it, things are getting more expensive and wages aren't keeping up. At least in the short term.
Generally, we like to see rents keep up with inflation. But is that feasible when wages are growing more slowly?
The good news? Unless you purchased your investment property with an adjustable rate mortgage, you are locked in. Keep an eye on raising rents and be aware that your tenants, especially in certain income brackets, may be feeling more financial stress than you'd like.
There are other good signs out there like the employment numbers and continued low inventory for real estate. Talk to your advisor. Stick to your plan.
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