Apr-24: The U.S. Rental Market

07 May 2024

 

The weekly 30-year fixed rate mortgage (FRM) on May 2, 2024, was​​ 7.22%. This is an increase of 438​​ bps since the end of Aug-21 when it was 2.84%.​​ On a monthly basis, the FRM ended Mar-24 at 6.82% which is just​​ 28​​ bps higher than this time last year (6.54%). Concurrently, the year-over-year home price gains through​​ Mar-24​​ for the 20 CBSAs tracked by this report (the CHTR 20-city index) have slowed down but remain positive at 4.94%. Table 1 shows the deceleration and now acceleration of the purchase market.

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Do changes in home prices filter into the rental market. First it must be pointed out that month-over-month rent growth (Rent3bd column 5 and RentApts, column 7 have been seasonally adjusted). We see evidence of rent appreciation (RRA) for both​​ single family detached properties and​​ units​​ in multi-unit structures​​ staying​​ near or​​ above​​ 5.0%​​ (columns 6 and 8).

 

There is​​ some​​ evidence that growth in rents on SFR detached properties and apartments in multi-unit building are leading indicators of CPI-Shelter. The year-over-year growth in rents for 3-bedroom detached properties is​​ now 4.94%. We also see in column​​ 8​​ that YOY growth in rental rates on apartments in multi-unit structures is still positive and now growing at a very fast rate (5.61% vs 5.07% last month). This information suggests the shelter cost of CPI is not going to fall below 4.00 percent anytime soon.

 

To get a micro-sense of how rents are changing with prices, Chart 1 shows both the year-over-year increases in home prices (HPA) and in rental rates (RRA) as of​​ Mar-24​​ for our 20 CBSAs.

 

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The chart shows that RRA loosely rises with HPA as we move to the right. The red bars show the significant rises in rental rates for 3-bedroom property and the equally fast rise for rents of apartments in multi-unit buildings.

 

In the face of higher mortgage rates, there are some reasons for the still amazingly steady home price growth we see in Table 1.

  • Migration out of high-priced California

  • Migration out of Central and South America to Miami

  • The job market remains very strong​​ 

  • Millennials moving into their childbearing age and trying to get out of their parent’s houses.

Because vacancy rates are low, the changes in rents for 3 bedroom detached properties and apartments that we see in Table 1 and Chart 1 are probably not due to seasonality. Rents are likely to stay high because:

  • Vacancy rates are low, despite the increased purchases of homes.

  • Landlords have pricing power.

  • Apartment renters might have low earnings and weak credit and may have no other choices but to pay higher rents​​ 

 

Individual CBSA rental markets:

Although slowing, these still high rental prices may continue. It depends, in part, whether renters can afford these increases and on the ability of landlords to increase rents in order to offset rising purchases prices for homes. The rule of thumb is that a household should allocate about 30 percent of earnings to shelter. To partially answer this question, we show four additional charts below. The first (Chart 2) is for three-bedroom detached properties and the second (Chart 3) is data for apartment rental (all unit sizes) in multi-unit buildings.​​ 

Chart 2 shows that in major CBSAs, like Los Angeles, CA, New York, NY , Miami, FL and San Francisco, CA renters are willing to allocate more than 50 percent of their earnings to renting a three-bedroom property.​​ 

 

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