One of the most defining traits of the American dream is homeownership. A continuous rise in rent prices is likely to be a driving force for many to pursue that dream. Moreover, the upsurge in rent prices over the past few months, especially in low-to-mid tier rentals is also likely to have a significant impact on the single-family rental market.
The latest Single-Family Rent Index [1] (SFRI) released by CoreLogic [2], has revealed that U.S. single-family rent prices increased 3.2 percent year-over-year in September 2018. However, rent price increases have slowed since reaching a peak of 4.2 percent in February 2016 and have remained stable over the past year with a monthly average of 2.9 percent.
Among the 20 metro areas analyzed by CoreLogic, Phoenix had the highest year-over-year rent price increase at 6.6 percent followed by Las Vegas at 6.2 percent and Orlando at 6 percent for the first time this year. Low rental home inventory, depending on the demand, contributes to the growth of single-family rent prices, the analysis noted.
The SFRI found that single-family rent prices climbed between 2010 and 2018. Rent prices of low-end rentals that cost less than 75 percent of the regional median rent increased 3.9 percent year-over-year in September 2018, down from 4.2 percent in September 2017. On the other hand, high-end rentals or properties with rent prices greater than 125 percent of a region’s median rent rose by 2.8 percent in September 2018, up from 1.9 percent in September 2017.
Honolulu saw the lowest rent price increase in September at 0.3 percent. However, rent prices have continued to rise in Honolulu since May 2018 when the metro experienced its first rent price increase following seven months of decline, the analysis revealed. Detroit experienced the lowest employment growth in September 2018, which could be a factor in its low rent growth of 2.8 percent.
“We’ve seen a slight uptick in rent prices over the past few months as strong employment growth continues,” said Molly Boesel, Principal Economist at CoreLogic. “The strength stems from the low-to-middle price tier, which has seen a monthly average growth of 3.2 percent since January 2018.”
Stronger rent growth was experienced in metro areas such as Phoenix and Orlando with limited new construction, low rental vacancies, and strong local economies. Both areas recorded a high year-over-year rent growth in September on account of employment growth of 3.8 percent and 5.9 percent year-over-year respectively. Houston saw the second highest employment growth behind Orlando in September 2018 at 4.3 percent.
This is compared with the national employment growth average of 1.7 percent, according to data from the United States Bureau of Labor Statistics, the analysis stated.
The SFRI also noted that rent prices continued to increase in areas affected by last year’s hurricanes like the Houston metro area, with a growth of 3.3 percent year-over-year in September 2018, up from 1.1 percent in October 2017.