Renting A Home Is Harder

What we are seeing in the relentless housing market in the United States is historical. From record high prices, historical price increases, and record jumps in rents, this is something very little people saw coming. The even scarier aspect of this market is that is does not look to stop anytime soon. While the market does look to slow when interest rates rise, there are still experts predicting that prices will continue to increase in 2022. Throughout 2021, the U.S. housing market was relentless and caused double-digit increases in housing costs and squeezed supply. In an environment where other asset classes are being negatively impacted because of rate hike scares, real estate looks like the only asset class to not slow down. Prices look to increase, supply looks to remain low, and rents look to skyrocket. Here is why renting a home is harder than buying a home in some cases.

Renting Demand And Prices

Rental prices for single-family homes are 8% higher in just one year. Throughout 2021, rents grew 7.8% nationally, and even more in some bigger markets. This increase is an all-time high in terms of increase in a single year. The most recent data from CoreLogic shows these rental increases and how it is scary for renters going forward. While many people are stuck renting because of the home price increases, this data is deterring. In December alone, rents were up 12% in the month from the year prior. Let us just say, if your leases expired in December, 12% more of your income goes towards rent this year. Some markets increased as much as 36%.

Now, do not think that only rents are increasing. In fact, home prices are increasing in tandem with rental prices. The median home price was up 14% year-over-year from 2021 to 2022. The average price for a home is up to $354,750, from data coming from Redfin Corp. Not only are home prices up, but home inventory is down. In fact, listings fell 29% to an all-time low of 438,000. Due to tight supply, it is hard to help first-time homebuyers and move-up buyers find homes. Now, renters are finding it almost impossible to find homes as the demand for homes is increasing daily. Not only is the demand increasing, but out-of-town buyers are willing to spend up to 30% over list price to buy homes. Mortgage payments also are climbing to record highs. The newest data on average monthly mortgage payments shows $1,877 a month for payments, as borrowing costs and asking prices increases.

Sentiment Shift To Renting A Home

Because of record high home price increases, renting looks attractive to many people waiting for a slowdown. In recent years, many buyers were priced out of the market or unwilling to take on a financial asset that takes 30 years of commitment. Not only are buyers less likely to take on a new mortgage in today’s seller’s market, but institutional buyers are also causing problems. Companies like Zillow and OpenDoor became online buyers in recent years as well. With all this pressure and outside demand, buyers are having a hard time finding homes. Fortunately, because there is so much institutional demand, there has been 85 billion dollars committed to building new rentals. Companies such as Invitation Homes, the largest single-family landlord in America, are continuing to build rentals for surging demand.

According to housing economist Jay Parsons, pressure on the rental market will continue. Because of demand for housing, rental markets continue to look like good investments and will continue to increase. Also, Parsons notes that there is an overall shift in the housing market sentiment, where more people are looking to rent than buy. Not only are entry level buyers stuck competing with people who prefer renting, but now upper-income earners are making the shift towards renting as well. We have seen record competition in the housing market, but will we see this in the rental market as well? In some markets, houses are receiving 15 to 20 rental applications in a day, so you will be the judge.

Source: Bloomberg