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With mortgage interest rates rising and home prices remaining at record highs amid a persistent shortage of houses for sale, more prospective buyers are becoming renters of single-family homes.
The median sale price of existing homes edged up to $407,600 in May, another record, according to the National Association of Realtors.
Meanwhile, the average interest rate for a 30-year, fixed-rate mortgage hovers near 6 percent, the highest in more than 10 years. Rates began this year barely above 3 percent.
The combination of higher rates and record home prices has added $513 to the typical monthly house payment for new buyers, the Mortgage Bankers Association has calculated.
“Single-family landlords say they are well-positioned as more would-be home buyers have little choice but to rent,” The Wall Street Journal noted.
“The more rates go up, the better it is for this business,” Bruce McNeilage, CEO of landlord Kinloch Partners, said at an industry conference in May.
“Because of supply and demand, we are raising rent roughly 15 percent, which is below our peers in many areas,” he noted.
Rental rates were up 14 percent in April, year over year, marking the 13th consecutive month in which rents rose at a record clip, data service CoreLogic said.
The shortage of homes driving prices higher is unlikely to ease.
New home starts declined 14.4 percent in May from April, the U.S. commerce department reported.
Mortgage interest rates are set to climb steadily and fewer buyers are able to afford to buy a house, sending homebuilders’ confidence in the housing market lower in June for the sixth straight month to its lowest level since 2020, according to a survey by the National Association of Home Builders.
In contrast, 74 percent of single-family-home landlords expect business to remain strong or even improve for the rest of the year, a poll by John Burns Real Estate Consulting found.
Invitation Homes, a subsidiary of private equity firm Blackrock, reported its rental rates are growing faster so far this year than they did last, the WSJ said.
Even so, their properties are 98-percent occupied and the turnover rate is at a record low, the company boasted.
However, many analysts warn that ever-increasing rents are unsustainable.
“Renter finances are being pushed to their limits in more cities, according to a new report by Moody’s Analytics,” the WSJ reported.
Households should spend no more than 30 percent of their gross income on rent, financial advisors typically say.
Since 2019, the number of U.S. metro areas where a renter would have to spend more than 30 percent of income on rent has almost tripled, from 8 percent in 2019 to 23 percent now, Moody’s found.
TRENDPOST: We noted in “Housing Market: Sales Up, Fewer Homes for Sale” (22 Feb 2022) that the new normal of remote work has given many employees the option of moving farther from a central office, freeing many to buy homes with more space in cheaper locales.
That trend has created entirely new enclaves of demand-driven pricey real estate, a trend we highlighted in the article “Million-Dollar Homes Now the ‘Average’” (22 Feb 2022).
TRENDPOST: A key underlying factor driving housing costs higher and higher is the pervasive entry of private equity firms into the U.S. housing market.
We have documented the trend extensively: as home prices rose, private equity firms began snapping them up, often snatching a house from a family that already had made an offer.
The firms then rent the houses back to the failed buyers at premium rental rates.
This tactic has reconfigured the housing market for years, and perhaps generations, to come.
Renters are paying top rates because the U.S. is in the midst of a long-term housing shortage. Materials, labor, and especially land to build new houses are in acute short supply.
TREND FORECAST: Demand for rental homes will keep prices high, making it harder and harder for renters to save enough cash to make a down payment on a home for which the price is now at record levels.
This is likely to create at least one generation of renters instead of homeowners, depriving these households of the main way in which Americans build and store wealth: by creating equity through home ownership.
To trace the development of this trend and explore its meaning, see our past coverage:
- “Rents for Single-Family Homes Reach 15-Year High” (1 Jun 2021)
- “Blackstone Extends Reach Into Housing Market” (29 Jun 2021)
- “Residential Rental Rates Skyrocketing” (10 Aug 2021)
- “Rents Soar as Investors Buy Properties and Raise Rates” (14 Sep 2021)
- “Investors Now Targeting Off-Campus Student Housing” (14 Sep 2021)
- “Rents Soaring. What’s Next?” (21 Sep 2021)
- “Single-Family Rental Homes: Investments Galore” (16 Nov 2021)
- “Home Sales Up as Money Gang Gobbles Up Houses” (23 Nov 2021)
- “Rents on the Rise” (11 Jan 2022)
In trying to squeeze every possible dollar from renters, private equity firms and single-family-home landlords will spark outcries among regulators and, ultimately, from renters no longer able to afford to live anywhere and who create a backlash movement.