Rising rents combined with growing housing inventory could lead to increased purchase mortgage originations in the near future.
The national rent increased by 3% in October compared to 2.7% the year prior, according to CoreLogic’s Single-Family Rent Index.
The cheaper end of the rental market had the biggest growth. Low-end rentals — categorized as properties with rent prices less than 75% of the regional median — increased 3.9% year-over-year. Meanwhile, high-end rentals — properties with rent prices greater than 125% of the regional median — increased 2.6% year-over-year.
The rent upsurge comes juxtaposed with residential housing starts rising 3.2% and inventory having its largest jump in 10 years. There is no absolute correlation between rent spikes and homebuying since higher rents also make saving for a down payment arduous. Inflated rent prices are one of the major factors why down payment percentages are shrinking.
“While employment growth helps feed rent growth, this relationship doesn’t always hold up, especially for cities with very high rents,” Molly Boesel, principal economist at CoreLogic, said in a press release. “For example, employment growth in Seattle this October was more than double that of the U.S., but rent growth during the same time period was weak. Of the 20 metros analyzed in the CoreLogic SFRI, Seattle ranks among those with the highest rent, which suggests there is a limit to how much rents can increase.”
By individual housing markets, Las Vegas had the largest year-over-year increase in single-family rents at 6.6%, followed by Phoenix with 6.4% and Orlando at 5.3%. The lowest increases were 0.3% in Seattle, 0.6% in Honolulu and 1.1% in Philadelphia.