Given all the market activity, all the Federal Reserve actions, all the expert talk GlobeSt.com has heard over the last few months, there is an almost inevitability in the headline from rental data and software proptech company Rental Beast: “Rental Demand Soars as Mortgage Rates Continue to Rise.”
“Rental searches conducted by licensed real estate agents and REALTORS last quarter nearly doubled in six out of ten U.S. rental markets,” the company said. It was using internal data from searches by real estate professionals. The top three market increases year over year were Miami (215%), Denver (211%), and Houston (121%). The figures dropped off sharply after that trio. At number 10 on the list, Dallas-Fort Worth, the recent annual growth was 54%. “Last quarter’s increase in rental inquiries are largely driven by potential buyers sidelined by affordability,” the company wrote.
Even with a series of partnership with “major multiple listing services” that Rental Beast claims, the numbers are self-selected as they are only from searches within its system. Still, those are some hefty growth numbers, and the dynamics are in keeping with how professionals have been assessing the markets.
As multiple CRE experts have been saying, the less likely someone can afford to purchase a home, the more likely they’ll need an apartment, because everyone needs to live somewhere.
The house market has been deteriorating for multiple reasons. Mortgage rates are certainly one. Prices are also incredibly high; the Q3 median sales price was $454,900, up 38.3% from the Q1 2020 figure of $329,000, according to data from the Census Bureau and Department of Housing and Urban Development. Incomes aren’t up anywhere near as much, meaning that a down payment has become increasingly more difficult to pull together.
The lack of inventory has been clear given data from the National Association of Realtors. October 2019 saw 1,208,438 listings for sale. A year later, the number was 733,244. Last October, 564,790. Last month, 753,845. Coming back up, but still far short of pre-2020 figures.
The trend has rocked the home building industry. In the middle of 2022, urban home building slowed as multifamily construction spiked and homebuilding has continued to slow.
Growing prices and lack of inventory means home purchases had to go down. In the meantime, people became discouraged and couldn’t simply sit around, waiting for conditions to improve. So, their alternate choices included moving back in with mom and dad or looking for a rental. That increased demand for rentals has meant growing rents. But now rents are starting to come down, at least somewhat.
As shown in the 2008 financial and housing crisis, there is only so far up prices of any residential type of real estate can go. Eventually people can no longer afford the amounts, find other ways to get by—whether family, moving to a less expensive area, or sharing space with roommates—and landlords have to bring the prices down, even with high demand.