Demand for rental property in the USA remained strong in March, the last month for which figures are available, according to the National Association of Realtors (NAR). 48% of the organization’s members who are involved in lettings reported higher residential rents compared to 12 months ago, an increase from 46% in February.
That’s backed up by real estate firm Trulia, whose figures show average increases in the 3.9% year-on-year area. That means rental increases are outpacing economic growth and food price rises – to say nothing of wages – and have become a driver of inflation.
Discussing the implications of the figures, the NAR said that rising rents may make home ownership more attractive, but may also slow the ability of those who are currently renting to save up for deposits.
‘The March data indicates a more upbeat confidence concerning market conditions compared to February,’ said the NAR’s chief economist, Lawrence Yun.
‘The improvement may represent the seasonal uptick in demand with the onset of Spring,’ suggests Mr. Yun. ‘Confidence about the next six months also showed a slight improvement in March compared to February,’ he went on, an effect that’s unlikely to be down to seasonal changes.
The problems estate agents were reporting were low inventories of available housing stock, and difficulties in obtaining mortgage financing. It’s therefore possible that some of the increased rental demand is coming from would-be buyers who aren’t able to move up.
Stronger rental demand is usually a good sign in a housing market where sales and prices are rising, since some purchasers are investors or landlords, and a market where people pay higher and higher prices for properties nobody wants to rent, or whose rents don’t make a profit, is obviously unsustainable.
In the USA, though, that’s not the story. Instead it’s a market where many people would like to be purchasers, but can’t afford to make the capital outlay. It’s also a market where the benefits of buying or renting are split geographically, with buying a better financial bet than renting in about half of US metro areas.
NAR members reported that the Qualifying Mortgage regulations and the increases in mortgage insurance premiums had adversely affected buyers’ ability to purchase property.
However, there’s good evidence that the rental upswing is powered by recovery in some places just as surely as it’s a symptom of a weak jobs market and high insurance costs in other places. One area of America where rentals are a sign of growth is Detroit, where median house prices in the metro area rose by double digits. In January of this year, a BuzzFeed contributor named Drew Philp bought a Detroit house for $500. But that illustrates an outlier, not the general trend. As the motor industry picks up, jobs become more stable and secure and the rental market expands, purchase prices in Detroit have risen 38% year-on-year since January 2013, according to Realcomp. Inventory and sales shrank as prices rose.