Low single-family rents are becoming more expensive
Over the past year, the pace of rent increases has slowed significantly, bringing the market closer to pre-pandemic levels.
CoreLogic’s Single-Family Rent Index (SFRI) showed that U.S. single-family rent increases in July 2023 posted a 3.1% year-over-year increase, down from 3.3% in June. The index, which analyzes changes in single-family rental prices nationally and across major metropolitan areas, fell year-over-year for the 15th straight month in July. Among other factors, apartment construction prices rising to their highest levels in five decades have largely contributed to the decline in rental prices, according to Bright MLS Chief Economist Lisa Sturtevant.
For most metropolitan areas, annual growth for single family rents was in the single digits, although there were notable exceptions in Las Vegas, Miami and Austin, Texas, which respectively recorded declines of -1%, -0.6% and -0.5%.
St. Louis had its highest annual increase in single-family rents in July 2023, at 7.3%. Chicago had the second-highest annual gains at 6.3%, followed by Boston and San Diego (both 5.7%).
“While U.S. single-family rental growth has now returned to its long-term average of about 3%, three U.S. metros posted year-over-year cost declines in July,” Molly Bussell, chief economist at CoreLogic, said in a statement. “However, since SFRI peaked in these metros in July 2022, the year-over-year declines represent a plateau in costs rather than greater weaknesses in single-family rental markets.”
She also added that the gains of the past few years are unlikely to be completely erased in the near future. For example, Miami recorded a 0.6% decline in annual rent growth in July 2023, but gains since July 2020 were 55%.
CoreLogic studied four tiers of rental prices: lowest price (75% or less of the regional average), lower middle price (75% to 100% of the regional average), and upper middle price (100% to 125% of the regional average) and more expensive (125% or more of the regional average), and two tiers of property types, attached versus detached. For the low-priced category, growth increased by 4.66%, compared to 3.7%, 2.9%, and 2.3%, respectively, for the other three categories. Detached rental prices rose 2.4% compared to attached price gains of 3.8%.
St. Louis and Chicago, which tend to be more affordable, have become more attractive to renters, posting annual growth above the national average. Meanwhile, some Sun Belt markets that saw high rental gains one year ago are now near the bottom of the list in terms of rising rental prices.
While lower rents seem like a good sign, there’s also a risk that lower rents will increase rental demand, Sturtevant noted, especially as first-time homebuyers are priced out of homeownership at 7%+ mortgage rates.
“The key is consistent delivery of new housing supply in places where demand is strongest,” Sturtevant said in a statement last week.