Home Rental industry The surge in rents should remain sustainable | Way of life

The surge in rents should remain sustainable | Way of life


The cost of renting a home is skyrocketing in cities across the country, squeezing the finances of low-income households and threatening the consensus that pandemic inflation will soon go away.

The national median rent climbed 9.2% in the first half of 2021, according to Apartment List. While part of the increase reflects a rebound in prices that fell earlier in the pandemic, the real estate company says rents are now higher than if they had stayed on their pre-covid path.

And they’re still growing at a rapid rate – just at the time of the year when the greatest number of lease renewals are expiring, locking millions of tenants into higher monthly bills. Polls from the New York Fed and Fannie Mae suggest renters are poised for further 7-10% hikes in the coming year.

Higher rents are the kind of price hike that’s hard to reverse – unlike many that have accompanied the reopening of the economy, from lumber to used cars. This means that a sustained increase in rents could represent a bigger challenge for the Federal Reserve. – shared by most investors – that the current surge in inflation will prove to be transitory.

“It’s a stickier trend that I think we’re seeing in other components right now,” said Sarah House, economist at Wells Fargo & Co. “When you sign a lease, on average, it’s probably for about a year. “

Another effect of rent inflation is to widen inequalities in the housing market which translate into larger disparities in income and wealth. The pandemic recovery has been called “K-shaped” by some analysts because its benefits were skewed in favor of the rich.

House prices have risen the most in over 30 years in the 12 months to April. The 15% gain in the Case-Shiller benchmark over this period “would translate into a wealth gain of $ 45,000 for a typical owner,” said Lawrence Yun, chief economist at the National Association of Realtors.

Many of these homeowners also refinanced mortgages at historically low interest rates during the pandemic – reducing their monthly payments even as the value of their equity rose. There were roughly 9 million refi deals in the United States last year, according to research firm CoreLogic, and they generated an average saving of around $ 180 per month for the borrower – locked in for 30 years. Meanwhile, tenants – whose typical income is about half that of landlords, according to pre-pandemic research from Zillow Group Inc. – are seeing their housing bills rise. Many are also threatened with eviction when a federal moratorium expires at the end of July.

June and July are the months when the greatest number of leases are to be renewed. A typical tenant who signs a new contract this summer will pay almost $ 100 more per month, according to apartment listing data. The seasonal cycle could cause demand pressures to ease later in the year.

“There is a lot of seasonality in terms of home sales and home prices,” said Frank Nothaft, chief economist at CoreLogic. “Not many people realize that a very similar seasonality occurs with rents, as most tenants will be moving in the summer.”

Inflation figures released by the Bureau of Labor Statistics also show a recovery in rental prices, although it is much smaller than that shown in real estate industry data. Part of the variance could be explained by the Bureau’s survey methodology, which only asks tenants to report prices twice a year. The BLS Rent Index rose 2.2% in May from the previous year. Apartment List data shows prices rose 2.3% in June alone. This is compared to previous years where rents typically rose around 2% or 3% in the first half of the year, said Chris Salviati, the company’s economist.

Part of the surge in rental demand is part of a wider housing market upheaval triggered by the pandemic – which has prompted Americans to seek more living space in the suburbs, while charging many to pay. buying houses there.

Wall Street, which historically hasn’t paid much attention to the rental sector, has noticed. Blackstone Group Inc. and KKR & Co. are some of the companies that invest in silver. Some investors buy new homes directly from the builder: The online real estate platform Fundrise recently acquired a 121-home development near San Antonio, Texas.

The COVID-19 crisis has also amplified regional variations in housing and rental markets which are inherently local, making national figures a limited guide.

In New York, for example, even though rents rose 4.7% in the past month, they’re still pretty much where they were when the pandemic started. This is because the first few months of the crisis triggered a drop in rents as people moved to lower density neighborhoods.

A few high-cost markets like San Francisco remain cheaper than in March of last year.

In contrast, tenants in most cities pay much more than they were then. In Sacramento, a one-bedroom apartment costs around $ 200 per month from the previous year, while in Boise, the jump is almost $ 270.

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