Low-End Single-Family Rent Growth Outpaces High-End – Rents Effected By Same Pressures As Home Purchase Market
It is well known that there are affordability issues in the home purchase market, but there is less information on the single-family rental market, which makes up one-half of residential rentals. The CoreLogic Single Family Rental Index reflects rents paid on single-family houses and condos, and using this index we can dissect rent growth by both price tier and metro area.
Figure 1 shows the 12-month change in our national rental index from 2005 to today. Rents for single-family homes fell during the Great Recession but then bounced back strongly from their low point in mid-2009 and have been trending up, mirroring home price growth. In October 2017, the index measured rent growth of 2.7 percent from a year ago. We can also show rent changes for the high-end (those rents 25 percent or more above the median rent in that market) and the low end (those rents 75 percent or less below the median in that market). The low-end single-family rental tier lagged the high-end tier from mid-2009 to early 2014, but then the low-end began steadily outpacing the high-end and the difference is growing. This mirrors the same high demand, low- supply forces that have caused low-end home prices to outpace high-end prices, as evidenced by shorter days-on-market and tighter inventory for low-end homes. Investors who entered the market to buy up distressed properties during the housing crisis might be exacerbating this trend in the rental market. High-end rents increased 2 percent in October from a year ago, while low-end rents increased by more than twice as much – 4.2 percent.
We can also look at the difference between low-end and high-end rent growth by metro area. Figure 2 shows that low-end rents have been increasing in the largest 20 markets, with Seattle leading the large metros with the biggest increase in rents at 7.9 percent in October. Austin had the smallest increase in low-end rents of the large metros. In most of the 20 markets shown in the chart, low-end rents are increasing faster than high-end rents, and the trend is happening all over the country, not just in one region. The one exception is Warren, Mich., where low-end and high-end rents are increasing at about the same rate. The biggest spread in low-end and high-end rent increases was in Charlotte, N.C., where the low-end increased 5.6 percent and the high-end showed no increase.
The single-family rental market is an important and often overlooked segment of the housing market and is affected by rising demand and constrained supply just like the rest of the housing market. The demand and supply pressures are especially apparent for lower-cost homes, for which rents are increasing at a much faster rate than for higher-cost homes.
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