Margaret Jackson of Yahoo! News reports on new data showing the increasing popularity of the build-to-rent segment. In the first quarter, construction began on 18,000 single-family built-for-rent homes, marking a 20% increase compared to the previous year. This trend mainly focuses on major metropolitan areas such as Phoenix and Atlanta but also expands to other regions. Due to higher interest rates, more people are moving toward rentals as an affordable living option.

Jeremy Duda and Sami Sparber of Axios report that Phoenix is seeing a surge in built-to-rent housing due to population growth and a developer-friendly environment. Institutional investors bought 30% fewer rental resale houses and built 75% more in the past year. According to Axios, renting a home costs about $1,000 less per month than owning one.

The National Association of Realtors (NAR) reports on this trend, highlighting that the one-year growth in built-for-rent single-family housing starts to rise to 90,000 units in 2023 from 81,000 in 2022. These asset types are becoming more popular because renting a single-family home can offer more space and amenities than an apartment, such as a yard for a pet, a home office, and recreational facilities.

Source: NAR (July 2024)

Of note, “The share of built-for-rent single-family homes grew from 5% in 2021 to 10% in 2023, thus doubling in two years. Both the share of homes and the number are the largest numbers collected since 1974 for this segment of the market.”

Source: NAR (July 2024)

Ana Teresa Solá of CNBC reports on the rise in built-to-rent, commenting that homebuyer affordability declined in April, leading more to choose renting over owning. The average asking rent for a single-family home in the U.S. was $2,262 in May, a 4.7% annual increase. The national median mortgage payment was $2,256 in April, up 6.8% annually.

New listings

Diana Olick of CNBC reports that total active listings increased 35% annually but that total inventory is still 30% below pre-pandemic levels. Further, two-thirds of homes sold for over asking price in May. Notably, housing prices are now 47% higher than in early 2020.

Skylar Olsen of Zillow reports that we are seeing a more balanced market: 

“Home sellers are returning to the market but finding buyers hesitating. Fresh listings of houses rose significantly over last year – outpacing sales and cooling buyer competition and home price appreciation. Zillow forecasts further price relief on the horizon – further injections of inventory and mortgage rates expected to stay elevated through the year should temper competition.” 

According to Zillow’s data:

• New listings increased by 7.9% month over month in May.
• There were 12.6% more new listings compared to last year.
• New listings are still 23.3% lower than pre-pandemic levels.
• In May, inventory (the number of listings active at any time during the month) increased by 7.4% from last month.
• There were 22.1% more listings active in May compared to last year.
• Inventory levels for the month were 33.8% lower than pre-pandemic levels—the smallest deficit in more than three years. 

Source: Zillow (July 2024)

Lance Lambert of Fast Company reports on national inventory levels, highlighting a decrease in sales activity across many housing markets due to higher mortgage rates. However, most areas in the country still have lower housing inventory and fewer months of supply than the pre-pandemic levels. Specifically, the Midwest and Northeast regions continue to experience tight housing conditions.

Source: Fast Company (July 2024)

Renter update

Zumper released its monthly National Rental Report, showing that the national rent index saw one-bedroom prices jump 1.5% in June to $1,526, while two-bedroom prices increased 1.9% to $1,900. Florida saw only minimal declines amidst one of the largest supply influxes, highlighting the ongoing strong demand for rental housing. 

Source: Zumper (July 2024)

Apartment List also released its monthly National Rent Report, which showed similar findings. Rent prices increased for the fifth straight month, but the overall rent growth for 2024 has been modest, indicating sluggishness in the market. The national median rent went up by 0.4% in June, reaching $1,411, but the pace of growth slowed slightly this month. This suggests that the market is headed for another slow summer.

Source: Apartment List (July 2024)

“Month-over-month rent growth is typically peaking around this time of year, so it’s notable that growth has instead stalled out in recent months. We actually saw a similar trajectory last year – February and March of 2023 brought a pronounced swing into positive rent growth, but that was followed by growth flattening out and then tapering off. This February and March, the data again seemed to reflect the start of a bounceback, but the three months since have been more reflective of the sluggishness which has characterized the rental market since late 2022.”

Lily Katz of Redfin reports on rental affordability, noting that 39% of renters earn enough to afford a median-priced apartment in the U.S. The average income for a U.S. renter household is approximately $54,712 per year. This is 17.3% lower, equivalent to $11,408 in dollars, than the $66,120 needed to afford the monthly rent for the typical U.S. apartment, priced at $1,653. Only 39% of renters earn enough to afford the median-priced apartment.

Redfin Senior Economist Sheharyar Bokhari comments: 

“Rents are growing at a snail’s pace compared to the rapid increases we saw during the pandemic, and are unlikely to soar again anytime soon. As a result, wage growth should continue to outpace rent growth in the coming months, as it has been doing since 2022…That will help narrow the affordability gap for renters, but for a lot of folks, the math still won’t check out. Many U.S. renters are and will remain burdened by the cost of having a roof over their head, and unlike homeowners, they’re not building wealth through rising property values.”