Low-Cost Markets Logged Significantly Higher Rent Growth

• National rent growth decelerated in June 2017 compared with June 2016
• Low-end rent growth more than doubled high-end rent growth
• Orlando had the highest year-over-year rent growth in Q2

Single-family rents, as measured by the CoreLogic Single-Family Rental Index (SFRI), climbed steadily between 2010 and 2016. However, the index shows year-over-year rent growth has decelerated slowly (Figure 1) since February 2016, when it peaked at a 4.4 percent. As of June 2017, single-family rents increased 2.8 percent year over year, a 1.6 percentage point decline since the February 2016 peak. The index measures rent changes among single-family rental homes, including condominiums, using a repeat-rent analysis to measure the same rental properties over time.

Using the index to analyze specific price tiers reveals important differences. Figure 1 shows that the index’s overall growth was pulled down by the high-end rental market, defined as properties with rents 125 percent or more of a region’s median rent. Rents on higher-priced rental homes increased 1.9 percent year over year in June 2017, down from a gain of 3 percent in June 2016. Growth in the low-end market, defined as properties with rents less than 75 percent of the regional median rent, increased 4.4 percent in June 2017, down from a gain of 5.5 percent in June 2016.

Rent growth varies significantly across metro areas[1]. Figure 2 shows the year-over-year change in the rental index for 20 large metro areas in June 2017.  Rental vacancy rates are available quarterly from the U.S. Census Bureau Housing Vacancy Survey. Figure 3 shows the relationship between the rent growth and rental vacancy rates for 37 metro areas that are available for both CoreLogic’s rental index and the Census’s vacancy survey in Q2 2017.

Cities with limited new construction and strong local economies that attract new employees tend to have low rental vacancy rates and stronger rent growth. Orlando experienced 4.5 percent year-over-year rent growth in Q2 2017[2], driven by employment growth of more than 3 percent year over year and a rental vacancy rate of 7.1 percent, slightly lower than the 7.3 percent national single-family rental home vacancy rate in Q2 2017.  In contrast, Oklahoma City, which has been hit with energy-related job losses since early 2015 and a rental vacancy rate of 11.5 percent in Q2 2017, experienced a 3 percent year-over-year decrease in rents, according to CoreLogic data.

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