Single-Family Rent Growth Slows, Signaling Potential Shift in Market Dynamics
Recent data indicates a slowdown in single-family home rent growth, potentially reflecting increasing financial pressures on consumers. According to cotality, single-family rent prices in July increased 2.3% year-over-year, a deceleration from the 3.1% average rise observed in july 2023. This marks a fall below the lower end of the 10-year average range of pre-pandemic growth.
Molly Boesel, senior principal economist at Cotality, noted the weakening trend, stating, “After a strong start to the year, single-family rent growth is clearly losing steam. In July, we broadly saw weakening in annual single-family rent growth across metro areas and price tiers.” monthly growth in July was just 0.2% higher than in June, substantially lower than the ancient July average of 0.7%.
While most major metropolitan areas are experiencing this cooling, Chicago is an exception, leading the nation with 5.1% rent growth, driven by tight inventory and consistent demand. New York City followed with 3.7% growth, with Philadelphia, Washington D.C., and los Angeles rounding out the top five. In contrast, Dallas and Miami showed the slowest growth, with Miami experiencing no rent growth at all – a stark contrast to the 40% annual increase seen in 2022 due to pandemic-related migration.
The slowdown extends across all price points. high-end properties saw a 2.9% annual increase, down from 3.2% last July, while low-end rents rose 1.6% annually, a decrease from 2.8% in July 2023.
This shift comes after a period where single-family rentals outperformed apartment rentals, largely due to a surge in multifamily supply and high for-sale home prices. Many families, traditionally homebuyers, opted for single-family rentals in desirable school districts.
Single-family rental REITs, including Invitation Homes and American Homes 4 Rent, have responded to this demand by developing more rental communities. It remains to be seen whether the recent weakening in rent growth will lead these REITs to adjust their building strategies. Recent data from Parcl Labs indicates that these large REITs were already shifting their focus, selling more individual properties to consolidate holdings into larger, purpose-built rental communities.
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