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Aug-22: The U.S. Rental Market

17 Aug 2022

Actions by the Federal Reserve to slow the economy have led to a rise in the 30-year fixed rate mortgage (FRM) as of July 14, 2022, to 5.51%. This an increase of 267 bps since Aug-21 when the FRM was 2.84%.​​ It should be noted that this is approximately where mortgage rated ended the month of June. So, the impact of the Federal Reserve tightening has seemed to reach a local maximum.​​ Concurrently, the year-over-year home price change through​​ Jun-22 for the 20 CBSAs tracked by this report (the CHTR 20-city index) showed​​ some​​ sign of slowing down, but not a significant sign of a HPA slowdown. The year-over-year HPA in Jun-22 was 17.23%. The Case-Shiller 20 city home price index, which is reported with a lag, increased for​​ May-22 by​​ 19.7%.​​ 


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Fear of additional mortgage rate increases, and the stock market gains from 2021 have kept the demand for SFR homes very strong. Evidence also indicates that homebuyers have adjusted by switching to adjustable-rate​​ mortgages, moving away from expensive coastal cities, or looking to more affordable suburbs.


As importantly for this report is that fact that rental rates on apartments in multi-unit structures are still growing fast, but now at a slower rate (12.34% vs 13.59 YOY last month​​ in Table 1). Alternatively, growth in rents on SFR detached properties are running slower than overall inflation.​​ 


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To get a micro-sense of how rents are changing, Chart 1 shows the year-over-year increases in rental rates as of Apr-22 for our 20 CBSAs. The chart shows that rents in the warm states of Florida, Texas, Arizona and Nevada grew at​​ exceedingly high rates. The striped bars show the very strong rent increases for apartments in multi-unit buildings.


There are many reasons for the amazingly strong home price growth we see in Table 1:

  • Rising, but still until two months ago, historically low mortgage rates

  • People rushing to buying homes before rates go up even more

  • A need for more space due to the pandemic and working from home

  • Migration out of high-priced, drought-stricken California

  • Migration out of Central and South America to Miami

  • Earlier stock market gains

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


The causes of the increases in rents for apartment dwellers we see in Table 1 and Chart 1 are less understandable. The reasons might be:

  • Apartment renters might have low incomes (but some renters in major CBSAs are high incomes) and have a lack of alternatives

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

  • Migration out of Central and South America to Miami.


Individual CBSA rental markets:

How many more months that these strong numbers last depend on whether renters can afford these increases? The rule of thumb is that a household should allocate about 30 percent of income to shelter. To answer this question, we show two additional charts below. The first (Chart 2) is for three-​​ bedroom detached properties and the second (Chart 3) is the 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 45 percent of their income to renting a three-bedroom property.​​ 


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This suggests that renters in other cities may continue to pay up to live where they are living or chose to rent a smaller property or move to locations where rents are cheaper.​​ 

Rent jumps for Detached Properties

13 May 2021



  • Rent Declines in Multi-unit Buildings

A​​ combination of low mortgage rates, and a desire for more space​​ in order to prevent infection and have additional room to work and play,​​ has led​​ some​​ apartment dwellers to terminate their​​ rental​​ lease and move. Chart 1 shows how rent appreciation plummeted in multi-unit​​ structures​​ in at​​ least​​ six​​ major cities in the United States,​​ 12 months into the pandemic.​​ 


  • Home Price Appreciation

It​​ also​​ has been widely reported that home price​​ appreciation during the 12 months ending in​​ Feb-21 was very rapid.​​ We can see the contrast​​ between home price appreciation and rent appreciation​​ for these​​ ten​​ Core Business Statistical Areas (CBSAs)​​ in Chart 2. Chart 2 shows​​ the Dec-20​​ observation for three data series: home price appreciation for single family residential properties (HPA_sfr), rent appreciation for single family residential properties (RRA_sfr),​​ and​​ rent appreciation for apartments in multi-unit structures (RRA_multi).​​ Home price appreciation by Dec-20 in Washington, DC was 7.05 percent, while rent growth for an apartment in a multi-unit building was minus 3.0 percent.​​ This suggests that​​ some​​ apartment dwellers​​ in those six cities​​ chose to buy a home.



In Chart 3 we can expand this analysis to 50 (CBSA). Chart​​ 3​​ shows that rents in multi-unit structures by Dec-20 went up in Memphis, TN and 40 other CBSAs, but decline in nine others. So the well-publicized declines​​ of rents​​ in the major CBSAs does not reflect all cities.