Housing Market: Fastest Pace for Single-Family Rent Growth in 15 Years

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Single-family rents are increasing at their fastest rate in almost 15 years. A new CoreLogic report shows that rent growth for single-family homes was up 5.9% year-over-year in April. That’s the fastest rate of growth since 2006, before the housing meltdown and the Great Recession.

Demand for detached homes has mushroomed because of the pandemic. Many Americans want more space inside their home as well as a place to go outside for fresh air. Remote work has also allowed for a migration to smaller cities and more remote locations. There’s also a lack of affordable for-sale homes to satisfy demand at lower income levels. All those factors are pushing people into rentals, and with that kind of demand, rents are moving higher.

CoreLogic’s Single-Family Rent Index

CoreLogic’s Single-Family Rent Index tracks SFRs. (1) That includes detached homes and single-family homes that are attached to other single-family homes, like condominiums. It analyzes the same group of homes over time to come up with a reading on rent growth.

The index shows that rent growth for detached homes is three times the rate of rent growth for units that are attached to other units. It also shows that rent growth for all kinds of units is now higher than it was before the pandemic.

CoreLogic economist, Molly Boesel, says: “While rent growth dipped significantly last April at the start of the pandemic, rising affordability issues and supply shortages in the for-sale housing market and ongoing demographic pressure from aging millennials have continued to place upward pressure on the single-family rental market.” She also sees these factors continuing and “leading to strong rent growth this year.”

Uneven Rent Growth Rate

The growth rate is somewhat uneven, however, between the low and high-priced rentals. CoreLogic says the difference is due to the uneven pace of the job recovery, which it refers to as a “K-shaped” recovery. It defines the low-priced tier as less than 75% of the regional median, and the high-priced tier as more than 125% of the local median.

Looking at the different price tiers: The rate of growth at the low end was 3.9% year-over-year in April. That’s up from 3.2% a year earlier. At the high end, the rate of growth was 6.1% compared to 2.2% in April of last year. That high-end increase is the fastest we’ve seen since May of 2006.

Rent Growth Highest for Detached SFRS

CoreLogic also analyzed the difference in rent growth for the various single-family property types. In addition to condos, those attached properties include duplexes, triplexes, quadplexes, townhomes, row-houses, and co-ops. CoreLogic found that rent growth for all tiers of detached homes accelerated most rapidly, at 7.9% year-over-year. The reading was just 2.2% for other kinds of single-family homes.

The report also shows the highest rent growth in lower-density cities that are attracting more renters. Phoenix tops that list with 12.2% rent growth. Tucson is a close second at 10.6%. Las Vegas, Atlanta, Austin, Dallas, Charlotte, Detroit, San Diego, and Houston round out the top ten.

Supply & Demand Dynamic

The CEO of one of the nation’s biggest institutional landlords, Dallas Tanner of Invitation Homes, says that he expects the current dynamic in the rental market to continue. During an interview with CNBC, he said: “You do not see anything in the numbers that suggest the supply and demand factors are going to change dramatically overnight.” (2)

He says with some 65 million millennials making major life decisions like buying or renting a home, he doesn’t expect a decrease in the need for housing. Although he views the housing market as healthy, he says we’re not building enough new homes each year to meet demand. According to St. Louis Fed, builders are producing about 1.5 million new units each year. (3) Tanner compared that to the late 1990s, and says the most urgent need right now is for more “more quality housing... across all spectrums.”

Links:

1 - https://www.corelogic.com/intelligence/inaccessibility-in-for-sale-housing-pushes-up-demand-for-single-family-rentals/

2 - https://www.cnbc.com/2021/06/18/invitation-homes-ceo-says-hes-not-worried-about-a-housing-bubble.html

3 - https://fred.stlouisfed.org/series/HOUST

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