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Already Up 10% Single-family Rent is Expected to Keep Rising

Single-family rent grew 10.2% year-over-year in September, sounding alarm bells for individual home buyers and Wall Street investors alike.

November 24, 2021
November 24, 2021
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Homebuyers can add skyrocketing single-family home rents to the list of reasons to buy a home sooner rather than later.

In September, single-family rent increased 10.2% nationwide from the previous year, according to data from CoreLogic. That marks the greatest increase since at least 2005 and a siren for renters to start looking for exit routes out of the rental market.

Single-family rent increases are the result of a substantial imbalance of supply and demand in the purchase and rental housing markets. The pandemic simultaneously fueled housing demand and inhibited the introduction of new supply,  leading to record price run-ups in 2021. Now, with the pandemic waning and the economy recovering, people are creating more households by moving out of shared living situations.

This trend is putting more pressure on a housing supply chronically strained by a decade underbuilding following the 2008 housing crash. While the purchase market is beginning to soften, steep single-family rent increases may be here to stay.

“Single-family rental vacancy rates remained near 25-year lows in the third quarter of 2021, pushing annual rent growth to double digits in September,” said Molly Boesel, principal economist at CoreLogic. “Rent growth should continue to be robust in the near term, especially as the labor market improves and the demand for larger homes continues.”

The steepest increases came in higher-priced and detached single-family units. Single-family units priced at or above 125% of the regional median grew 11% year over year in September.

Price Tier (% of regional median)  September 2021 YoY Price Growth Lower-priced (75% or less)8.3%Lower-middle priced (75% to 100%)9.3%Higher-middle priced (100% to 125%)10.5%Higher-priced (125% or more)11%

Rental prices for detached single-family units (12.2%) continued to outpace rents for attached single-family units (7.8%) in a trend that’s taken off during the pandemic. This is likely a reflection of people’s desire for more space to work from home and to use as a buffer between neighbors.

Is Wall Street driving up single-family rents?

Detached single-family rentals have also caught the eye of Wall Street investment firms as a hedge against inflation. With home prices and rents rising faster than inflation, single-family home rentals are a safe investment that offer a faster return on investment than they have in the past. In some markets, institutional investors made up over 30% of single-family home purchases in the second quarter of 2021.

Overall, Wall Street’s interest in single-family rentals is a symptom of rent increases, not a cause. In August, CNN Business reported that large investors owned about 300,000 homes or 2% of all single-family rentals. But in at least two metropolitan areas, the presence of institutional investors correlates with a steep single-family rent increase.

Metro area  September 2021 YoY Single-family rent change  Investor share Q2 2021 Atlanta-Sandy Springs-Roswell, Ga.13.0%31.6%Phoenix-Mesa-Scottsdale, Ariz.19.8%29%

Wall Street may not be the cause of single-family rent increases, but its outsized presence in some markets isn’t helping.

For homebuyers, the key takeaway may be the value that hedge fund investors see in single-family homes even after a year of record price gains. A fixed mortgage payment is a trustworthy hedge against inflation and rent increases, and a means to accumulating wealth.

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