Assessing Property Statistics: Rental Rates

A rental rate is the rate of rent for a property per month/square metre/number of rooms and the list goes on. It is just the rate of rental return expected compared to a variable (most commonly per month or per square metre).

 

What do rental rates measure?

Rental rates are our best measure of the trend of buyers in the market.

In any property market there will be a balance of investors, speculators, homeowners and home-sellers. These groups play a large role in determining the strength of an economy. If the buying and selling is primarily speculative, then the economy has a weak framework for increased housing prices. However, it is a market that has a strong group of people who want to live in houses, the market has a solid base.

This happens as speculation and furthermore, investment, can fluctuate greatly and it will often have larger swings in the business cycle. Whereas, a more consumer based market will be more stable as people will stay in their homes and will continue to need to move between homes.

 

Why are rental rates helpful?

As discussed above, being able to determine the scope and audience in a property market is important.

Rental rates (especially coupled with median house price analysis) can give an insight into this market.

If there is rising median house prices and rising rental rates the market is more likely flooded with people who want to live in homes. This will make stronger and more stable growth in the market.

However, if rental rates were falling, but median price was rising it would suggest a primarily speculative market. This happens as investors and speculators are artificially propping up the price with their actions while consumers are drawing out due to the rental rate (causing it to drop).

 

Rental rates, the flipside

Now, with all of this there is a flipside. If investors for instance, saw a rental increase and a median price increase they may see fit to invest more. Hence, the price mechanism is at work. This is the tool that balances supply and demand and is active constantly in any market. Hence, rental rates can assert how a market is currently, but on their own, struggle to predict the future.

This is why, whenever doing a proper property analysis, it is crucial to draw on multiple sources and streams of statistics to gather a single prognosis.

 

Keep reading up on assessing property statistics below:

Assessing Property Statistics: Median Price

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