Oct-22: The U.S. Rental Market

21 Oct 2022

Actions by the Federal Reserve to slow the economy have led to a rise in the weekly 30-year fixed rate mortgage (FRM) as of Oct​​ 20, 2022, to 6.94%. This​​ is​​ an increase of 387​​ bps since the end of Nov-21 when it was 3.07%. Concurrently, the year-over-year home price changes through Aug-22 for the 20 CBSAs tracked by this report (the CHTR 20-city index) showed some signs of slowing down. The year-over-year HPA in Aug-22 was 13.70%. The Case-Shiller 20 city home price index, which is reported with a lag, increased for Jul-22 by 16.1%.​​ However,​​ existing home sales have fallen for​​ eight straight months in a row, and Zillow.com reported that home values​​ in Aug-22​​ tumbled (MOM), in many formerly-hot markets, including Phoenix (-2.3%), Las Vegas (-1.9%), New Orleans (-1.0%), Riverside (-0.9%) and Austin (-0.9%).


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How long does it take for home price declines to filter into the rental market – if ever?​​ We see in column 9 that​​ growth in​​ rental rates on apartments in multi-unit structures​​ is​​ still positive, but growing at a​​ slower rate (9.85% vs​​ 11.59​​ YOY last month). Alternatively, growth in rents on SFR detached properties are running about equal to overall inflation.​​ 


To get a micro-sense of how rents are changing, Chart 1 shows the year-over-year increases in rental rates as of Jul-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.



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There are​​ many reasons for the amazingly strong home price growth we see in Table 1, but which now are beginning to reverse themselves:

  • 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, and a strong job market​​ 

  • 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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