Graphic: Where is rent increasing and decreasing the most?
The bursting of the housing bubble created a surge in renters that has been a boon to the multifamily market. It remains to be seen whether that demand will ebb as the economy and the housing market recoveries continue to gain traction.
Over the past decade, from 2005 to 2015, the share of all U.S. households that rent rose from 31% to 37% – the highest level since the mid-1960s, according to a new study published by the Joint Center for Housing Studies of Harvard University. That number translates to some 43 million families and individuals that now live in rental housing.
The housing market crash has certainly contributed to that bigger pool of renters. An estimated 8 million homes were lost to foreclosure to the recession, according to the Harvard study. Today, many borrowers are continuing to work to repair damaged credit and maneuver in an environment where financing standards are more stringent. Added to that, plummeting home values spawned a new generation of “renters by choice.”
Despite the significant fallout, the single-family residential market has been on a slow road to recovery. Home prices and sales are on the rise, and even new construction has made a comeback in many metros. Although the pace of the recovery varies widely across the country, nationally, average property values are up 28% since early 2012, according to the December home price report from FNC Inc. As of December, average property value rose 6.2% from the same period a year ago. The cities that experienced the biggest value gains in 2015 included:
- Portland: 14.8%
- Sacramento: 13.8%
- Denver: 13.4%
- Orlando: 12.4%
- Cincinnati: 12.0%
Yet the single-family housing market recovery is a mixed bag. The New York Times recently reported that home sales rose 2.0% to a seasonally adjusted annual rate of 512,000 units in February. Sales varied widely with strong sales in the West at 38.5% that offset negative sales in the Midwest, East and South. Excluding the West, new home sales in February were actually down 8.1%.
So far, the recovery underway in the single-family residential market has yet to put a dent in the overwhelming demand for rental housing. Vacancies remain tight across most metros and rents continue to inch higher. Real estate firm Marcus & Millichap is predicting that national apartment vacancies will tick slightly higher this year to average 4.2% by year-end with effective rent growth at 4.5%.
The rising costs of rental housing may foster a tipping point that will send some renters back to the for-sale housing market. Notably, some of the metros with the biggest month-over-month spikes in rent for April include San Jose at 28%; Dallas at 21% and Los Angeles at 18%, according to Rentable. On the flip side, those markets reporting the biggest declines in rent – likely due to shifts in demand or new supply – include Las Vegas at -11%; Fort Worth at -10% and Bakersfield, Calif. at -9%, according to Rentable.
But, by-and-large, today’s renter pool appears fairly entrenched. Displaced homeowners represent only a fraction of the rental market. The broader rental market is being fueled by a variety of diverse sources, including favorable demographic trends that have produced a growing number of renters among both millennials and empty nesters. In addition, the economic downturn and still low wage growth environment has highlighted the benefits of renting for many Americans.