Rents are rising because of demand. All the families experiencing short sale and foreclosure have to find new homes. Some people live with family or friends for a time, but eventually they want their own space. 2-3 years after a short sale, depending on credit, people who went through short sale can purchase again with an FHA loan. The same goes for bankruptcy.
We also have to consider that there is a pent up demand for housing. We are far below the averages for new construction, and Gen Y is beginning to enter the first time buyer market. However, the economic lessons of the recession have taught them that debt is a four letter word, and job security is uncertain. No one is singing, "Take This Job and Shove It." Everyone is rethinking their economic futures.
The vacancy rate in the Twin Cities is under 2%, and rents are higher than they were a year ago.
High rents, low interest rates, and affordable prices will drive the pendulum towards purchasing.
I don't believe that we need to worry about a rental collapse with 9% unemployment, and close to 20% under employment. The job market determines who can buy.
Investors are looking for properties for cash flow. During the boom many multiple family properties were upside down, and investors hoped that appreciation would catch them up. it didn't. Properties bought at this time, at lower price points have cash flow, and can be sold for a profit down the line.
The economy is still a long haul away from a rebound. The housing market has improved, but it is doubtful that droves of people will be leaving their rental homes in droves for quite awhile.