Shownotes
Soaring U.S. rental prices have prompted discussions about the nation's trajectory towards a renter-centric society.
From the exorbitant rental prices in Miami to the ongoing wisdom that homeownership is an advantageous financial decision, as renters and homeowners search for affordability and stability, they will need to navigate an increasingly complex market.
With rental costs experiencing a staggering 30% increase over a three-year period, this episode of Core Conversations examines various factors contributing to this phenomenon, including a severe shortage of rental properties, heightened demand from new households, and the impact of high mortgage rates on homeownership rates.
As Americans search for solutions to growing rental prices, build-to-rent communities have stepped into this dynamic. These developments offer solutions to the rental supply crisis but also raise questions about the long-term impact of these communities on local economies and housing market dynamics.
In this episode, host Maiclaire Bolton Smith and CoreLogic Principal Economist Molly Boesel discuss the complex interplay between economic factors, housing policies, and societal trends shaping the rental landscape in the United States.
In This Episode
- 2:29 – Why are rents so expensive? Is the lack of affordability transforming the U.S. into a land of renters?
- 7:38 – How does the recent 30% increase in rental prices compare to the long-term average? How do rent-controlled apartments skew the growth?
- 9:10 – Looking at regional rent affordability and what happened in Miami.
- 10:15 – How is the rental economy distributed between single-family and multifamily units? Is the build-to-rent economy further tipping the balance?
- 16:46 – Who is investing in these build-to-rent communities? Is it venture capitalism? Banks? Individual investors? And how are these communities impacting local economies?
- 17:39 – Erika Stanley goes over the numbers in the housing market.
- 18:39 – How are high rental prices correlated with the slowdown in homeownership rates?
- 19:48 – Why are first-time homebuyers still making up a large share of buyers despite high interest rates?
- 21:42 – Erika Stanley reviews global natural catastrophes and their effect on the insurance market.
- 23:00 – Are there advantages to being a renter versus a homeowner even in the current rental market?
Links:
Up Next: Why US Property Retains Its Value Compared to Other Global Markets
Find full episodes with all our guests in our podcast archive here: https://clgx.co/3HFslXD4 Copyright 2024 CoreLogic
Transcripts
Molly Boesel:
In:Maiclaire Bolton Smith:
That's insane, wow.
MB:
% by the end of:MBS:
Welcome back to Core Conversations: A CoreLogic Podcast, where we tour the property market to investigate how economics, climate change, governmental policies, and technology affect everyday life. I am your host, Maiclaire Bolton Smith, and I'm just as curious as you are about everything that happens in our industry.
If you follow the housing market, you've probably heard of the build-to-rent communities that have sprung up in subdivisions across the United States. These communities have raised many questions, including whether the U.S. is moving toward becoming a society of renters. However, the emergence of this phenomenon is due to complex factors in the market.
shortage of housing units in:Then there's the question of affordability, both in terms of home sale prices and rental prices. But those aren't the only two pieces of this complex puzzle. So to talk about this trend and the rental economy across the country, we have one of our favorite guests back with us today, Molly Boesel, principal economist from our Office of the Chief Economist. Molly, welcome back to Core Conversations.
MB:
Oh, Maiclaire, it's great to be here. This is one of my favorite things to do each quarter, I guess, we do this.
MBS:
Yeah, we've done quite a few of them. And don't tell any of our other guests — you're my favorite.
MB:
I think they're going to hear that now.
MBS:
It's all good. Everyone's my favorite, but I love doing this with you.
Erika Stanley:
Before we get back into the state of the U.S. rental economy, I wanted to remind our listeners that we want to help you keep pace with the property market. To make it easy, we curate the latest insight and analysis for you on our social media where you can find us using the handle @CoreLogic on Facebook and LinkedIn or @CoreLogicInc on X, formerly known as Twitter, and Instagram. But now, let's get back to Maiclaire and Molly.
MBS:
re at CoreLogic at the end of:MB:
Yeah, that is a great question. So there have been years of increases in rents, and that really stems from, first of all, the low supply of rentals. Just like there's a low supply of for-sale housing, there's a low supply of rentals.
MBS:
Sure, yeah.
MB:
Yeah. And we also have an increased demand from new households. And why do we have a lot of new households? Well, we have a lot of our population is in that age where they form households, but we also have one of the strongest job markets on record. So with the economy strong, people are going to be forming households. So that's one of the reasons rents have been going up. So not only the newly-formed households are creating demand, but you also have some spillover from that for-sale market you talked about that was so constrained, and that's all making it much more expensive to buy. Renters are delaying home ownership, and they're keeping that pressure on rents. There's a for-sale housing market, our rental housing market, but you can really think out of it as just the overall housing market going up.
MBS:
in time, at the beginning of:MB:
s are going up, at the end of:MBS:
Doesn't sound too bad. Yeah.
MB:
ey are still going up. And in:MBS:
And they're going up from something that was higher historically, right?
MB:
rds right out of my mouth. In:MBS:
That's insane. Wow.
MB:
% by the end of:MBS:
t that overall increase since:MB:
Yeah, so over 3.5 years, up over 30%.
MBS:
That is crazy. That is crazy.
MB:
Yes. Exactly. Exactly.
MBS:
Wow. Wow. People's income hasn't gone up over 30% in the last three years.
MB:
No, no, it has not gone up over 30%. It's certainly not kept up. And that's when you referenced that study earlier in the podcast here about one of the least affordable rental markets on record, and that's because rents have gone up so much and incomes haven't really kept up.
MBS:
Yeah, no, absolutely. The other thing I think of too is because mortgage rates have gone up so much, and maybe if people are renting out a home that they have a mortgage on, they have to charge more for a rent as well too. I look at, we recently bought this house, you and I have chatted about this before too, and what our mortgage is compared to what it would've been two years ago is significantly higher. And if we ever chose to rent out this property, I don't think anybody would want to pay for it what we would have to charge to make money. So I think if people are in that circumstance of maybe they're buying an investment property and something they want to rent, they either have to have a really high rental value, or it's not even an option for them to make an investment.
MB:
Yeah, that's a good point. So you have what we might term accidental investors. So those people who don't necessarily want to sell their current property, but they want to buy a new one, and then they take out a mortgage at a pretty high rate, and then they need to charge high rents. So it's all related.
MBS:
Yeah. Wow.
ES:
,:MBS:
Okay, if we go back to that 30-ish, over 30% increase in the last 3-ish years, how does that compare if we look at a long-term average over the last 20 or 30 years?
MB:
Yeah, so we had a period of time in the rental market roughly about 10 years before the pandemic when rent growth was consistently around 2 to 4% annually.
MBS:
Okay. Wow.
MB:
So when I'm talking about we slowed down to the 2% rate, that's really more the average long-term rate for rent increases. So seeing rent increases come down to around 2% is really, I think, encouraging that we've come back to that trend.
MBS:
Something that that particular comment just triggered a thought. And I don't know if we have any data on this, but I know there's this topic of rent control, which sometimes comes up, and people are locked in and can't have their property increase in value too much. Do we have any research or any data in if rent-controlled properties have seen this kind of growth as well, or if that is something, have we not looked into that?
MB:
Yeah, I think just with the way rent control works, I don't think they are able to increase the rent at all. But what will happen is other rents in the area will make up for that.
MBS:
Sure. Okay.
MB:
So if say an investor has more than one property, and one is rent control, they may need to increase the other rented properties to make up for that.
MBS:
Sure, to make up to it. Yeah.
MB:
Exactly.
MBS:
Okay, going back to this affordability topic, because it's a huge one. Regionally though, it's not the same across the country. There definitely are certain cities or certain metros that have had much more significant increases. I think when we talked to Selma, she called out Miami as being one that was really, really huge.
MB:
here. Rents increased from...:MBS:
That's crazy.
MB:
Yeah, that's a crazy increase. It's like what we see across the country with home prices as well. You have people coming into the area from maybe New York who have pretty high salaries moving to Miami and bringing those high salaries with them and increasing the rents, along with the demand helping increase the rents. But then what really happens is those residents that were already there do become priced out of their rentals.
MBS:
Yeah, yeah, yeah. The other thing that just triggers a thought as we're talking is I think historically, when people talked about renters, they thought apartments, apartment buildings. But I know a huge part of the rental markets are single family homes and townhouses. What's the percentage of people do we know in terms of those multifamily complexes versus a single-family home?
MB:
Yeah, so our CoreLogic index that I referenced earlier, that is for single-family homes. So those are detached houses, condos, townhouses. So anything like that. And those are about 50% of the rental market.
MBS:
Wow.
MB:
So I think people think the rental market's mostly these multifamily properties, and no, the single-family are about 50% of the rental market.
MBS:
That's huge. That is really huge. It's much higher than I anticipated it being.
MB:
Yeah, yeah. It is. I think when I first looked at that years ago, I was like, "Wow. Yeah. Okay."
MBS:
I think it's because when we think renters, we think apartment buildings, we think multifamily complexes.
MB:
There is all sorts of stuff.
MBS:
Yeah. So if it's 50%, one thing that you and I have talked about this before, Selma and I have talked about it as well, is just the demand. There's not a lot of properties on the market, but Selma did mention that there's an influx of new builds happening right now. Is the lack of properties on the market contributing to this high percentage increase? Is that correlated?
MB:
So there's a lot going on with new builds, and one thing is building has been really stagnant in the U.S. really since the Great Recession, and that goes back to overbuilding back then, and then a lot of builders going out of business and not keeping up. And so now with the demand and the lack of resale properties on the market, builders are finding it's a good time to build. Another thing is, oh, we talked about this with my rates buydown podcast, builders, they provide their own financing a lot of times, and they're able to buy down rates. So if I were to buy a resale property, I'd need to go to the bank and I'd end up with a, what, 8% mortgage rate or something. I don't know where we'll be when this comes out, but a builder could buy down that rate and self-finance that. They don't need to go to a bank for that.
MBS:
Yeah. Yeah. Yeah, that's a really good point.
MB:
That makes a new build really popular for buyers.
ES:
e is the final episode of the:MBS:
One thing I've heard of is this concept of build-to-rent. So is that related to that, is that builders are building properties to make them rental properties?
MB:
Yeah. So built-to-rent, I just find fascinating because it really fills this market. You're always going to have renters around, even if it's not a great time to buy because of interest rates or prices are really high, then those-
MBS:
Some people just prefer it.
MB:
They'll be in the rental market. And so it's what you might call an evergreen kind of a concept. But yeah, so a builder who may be building a new community for sale will then maybe shift to building that community, maybe not entirely for rent or partially for rent.
MBS:
Sure. Yeah.
MB:
So there's no one cookie-cutter model for that.
MBS:
Yeah. Yeah, definitely, I remember when we were looking for this house. We encountered some new builds that there were something like they were intending for 50% of the homes to be for rent, and the other ones were meant to be for sale. So I think that was just part of their strategy, their business strategy.
MB:
Yeah, yeah. And you have young — people who don't want to take care of a house, or they want some new construction, but they can't afford to buy it. And you have also students.
MBS:
Sure. Yeah.
MB:
You have retirees who don't want to take care of a yard.
MBS:
Those are the ones that will always be renters, students and-
MB:
That's right. That's right. And it's like they operate like a multifamily building, but they look like a regular single-family community.
MBS:
Yeah, absolutely. I think also when people think rentals, they think starter homes or things for students. Is that primarily what these build-to-rent are, or are they trending more toward luxury homes as well?
MB:
Yeah, so with the build-for-rent, I think it's just not... Like I said, it's not really a cookie cutter model, but the sweet spot is really like a 2,500 square-foot home. So three to four bedrooms.
MBS:
That's a big house.
MB:
So for a rental, that's pretty big. I know where at my house I live, it isn't 2,500 square feet, but that is a decent sized house.
MBS:
It is. Yeah.
MB:
And because they're new and they have a lot of the newer amenities, they do come at a premium. So I think that'd be more your premium rental market, but it does fill a hole and it adds to that supply. If you have a shortage of rental supply, you're adding to that supply of rental houses. So that should ease up any supply pressures you're seeing on prices.
MBS:
Sure. Yeah.
MB:
And then the other thing that fascinates me with built-to-rent is these don't necessarily always need to be rentals forever and ever.
MBS:
Sure. Yeah.
MB:
If there comes a time when the owner of the build for rent just wants to sell everything, they've got a community of single family homes they can sell.
MBS:
Yeah. That's a really good point.
MB:
So that, in some future, sometime in the future could add to the for-sale housing.
MBS:
Yeah, yeah. Wow, interesting. I think I read somewhere that it wasn't just private venture capitalists that were building these build to rent, but also some of the largest banks were also joining in on that. Is that true?
MB:
Yeah. So build for rent has really increased over the past probably five years. It used to be a pretty small market, and it's just been increasing year after year. It's still a pretty small portion of the rental market, but it has been growing. So yeah, all sorts of investors are getting into that.
MBS:
Yeah. Is it big enough or growing enough to make a dent in the economy or make any impact in the current economy?
MB:
Well, I think when you look at the build for rent, they're really targeted in certain parts of the country.
MBS:
Sure. Yeah.
MB:
So it could make an impact on local economies, but maybe not the entire U.S.
ES:
It's that time again. Grab a cup of coffee or your favorite beverage. We're going to do the numbers in the housing market. Here's what you need to know.
over-year basis from December: nd housing demand. In January:These economic and housing market dynamics are happening while the inventory of homes for sale remains slim. Miami, once again, posted the highest year-over-year home price gains at 10.7%. Prices in San Diego, Chicago, Boston, and Washington, DC rose 8.1%, 6.8%, 6.7%, and 6.2%, respectively. Meanwhile, Spokane Valley, Washington is at a very high risk of decline in home prices over the next 12 months. And that's The Sip. See you next time.
MBS:
Okay, that's really interesting. And I guess on the other hand, if we flip this and we talk a lot about homeowners and home ownership and purchasing homes, because of this influx and growth of the build-to-rent and others, is that correlating at all with the slow home ownership rates, so maybe not have as many people — Is that simply because of high interest rates, or is it correlated?
MB:
Yeah, I think the slowdown in home sales really has a lot to do with high interest rates, and the high interest rates were coming on top of really high home price increases. When interest rates were low, even with, what, prices went up around 40% over the past few years, with interest rates down around 3%, it really was still pretty affordable month to month to make your payments. But once interest rates doubled or more-
MBS:
Skyrocketed, yeah.
MB:
Yeah, That's what really put the brakes on home sales.
MBS:
Sure. Yeah, that makes sense. I guess one thing we've talked about, I think Selma and I talked about this at the end of the year, was the data is showing a lot of new first-time homebuyers. I mean, part of it, I think Selma and I talked about as well too, is they don't have anything to compare it to. They don't know what a 2.5% interest rate is because they never had it.
MB:
That's right. Yep, yep, yep.
MBS:
So they are coming into this with not knowing how good it could have been. Do we think it's these skyrocketing rent prices that have driven them to be like, "Let me just buy a home, and sure, 8% interest or 7% interest is... Okay, that's just what it is"? What are your thoughts on that?
MB:
Yeah. Yeah. Exactly. You're not giving up any kind of low mortgage rate, first of all, first-time homebuyer. So when you look at it, the median rate of outstanding mortgages, so everybody that has a mortgage right now, their median rate is 3.5%.
MBS:
Wow.
MB:
So that's weighted way towards the people that bought a few years ago or more. So if you're an owner with a 3% to 3.5% mortgage rate, do you really want to buy a new, a different house and take on an 8% mortgage? I mean-
MBS:
You're asking somebody who did it.
MB:
Yeah. Exactly. Exactly.
MBS:
But was it a smart decision overall in terms of finances? No, not really. People, would not be their top choice of things to do.
MB:
Right. So if you're moving to a new city, that certainly makes sense. I mean, but if you just maybe want to trade up and get a slightly bigger house, it's really hard to stomach that.
MBS:
Yeah, for sure.
MB:
So that's a lot of what's driving that increase in the share in first-time homebuyers. The number of first-time homebuyers maybe not going up a lot, but the share is going up a lot because-
MBS:
Sure.
MB:
... the repeat buyers share is going way down.
MBS:
Yeah. It's down so much.
MB:
Exactly.
MBS:
Yeah, no, that totally makes sense.
ES:
Before we end this episode, let's take a break and talk about what's happening in the world of natural disasters. CoreLogic's Hazard HQ Command Central reports on natural catastrophes and extreme weather events across the world. A link to their coverage is in the show notes.
2024 started on unsteady footing when a magnitude 7.5 earthquake rocked Japan's Noto Peninsula causing widespread damage. Insured loss estimates are between $1 billion and $5 billion.
Then the windstorms rolled in. January brought winter storm Finn to the southeastern U.S. CoreLogic estimated that 26,617 single- and multifamily homes were potentially impacted by tornadic winds in Florida, southeastern Alabama, and southwestern Georgia.
Only days later, storm Ingunn slammed into Norway's west coast causing widespread disruption to transportation infrastructure across Norway. The affected areas were sparsely populated and had limited commercial activity, so insured loss from this event is not expected to be high.
In California, flooding from atmospheric rivers returned for the second year in a row. Officials declared a state of emergency in eight California counties with evacuations in some areas. Hundreds of thousands of homes in California were at considerable risk of life-threatening flooding. At the time of this recording, the storms were still ongoing.
MBS:
Okay. One last question is advantages of being a renter versus a homeowner. I think historically, everybody was always saying, "It's better to be a homeowner because you're building equity and you're building this, and you're building that," and a renter, a lot of people think of it as, "Your money's just going out the door." The stability of a 30-year fixed mortgage, even if it's a high mortgage rate, if the rental rates are going to continue to increase at 5%, 2% now, maybe they go up to 5% or 10%, again, you don't really know what's going to happen. So is there the opportunity-
MB:
You really can't control it. Right.
MBS:
You can't control it, versus a 30-year fixed, even if you're locked in at 7% or 8%, you know what it's going to be.
MB:
Right. And the thing you don't have with a rental is when mortgage rates drop, as they're expected to do in the next year or so, you can't re-fi that rental rate. So when you go... I doubt a year from now that mortgage rates will be at 8%. So there'll be a lot of refinancing, and people will really bring down their monthly costs quite a bit with owning.
MBS:
Yeah. Yeah, definitely. Okay, Molly, this is number one of Q1. We're going to have you back three more times this year. So thank you for-
MB:
I am looking forward to it. This, like I said, is one of my favorite things I do each quarter.
MBS:
Yeah, me too. So thank you so much for joining us again today on Core Conversations: A CoreLogic Podcast.
MB:
All right. Thank you.
MBS:
Okay. And thank you for listening. I hope you've enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts, and subscribe wherever you get your podcast to be notified when new episodes are released. And thanks to the team for helping bring this podcast to life: producer, Jessi Devenyns; editor and sound engineer, Romie Aromin; our facts guru, Erika Stanley; and social media duo, Sarah Buck and Makaila Brooks. Tune in next time for another Core Conversation.
ES:
You still there? Well, thanks for sticking around. Are you curious to know a little bit more about our guest today? Well, Molly Boesel is an economist at CoreLogic. She is responsible for analyzing and forecasting housing and mortgage market trends. She has deep expertise in mortgage market analysis, model development, and risk analysis in the housing finance industry. She regularly contributes to the CoreLogic Intelligence blog where you can read her work at corelogic.com/intelligence.
