Home prices are not the only shelter cost that saw explosive growth in 2021. Single-family rent rates grew from November 2020 to November 2021 at nearly triple the rate they did the year before.
According to CoreLogic, the national market rate rent in November increased 11.5% year over year, up from 3.8% in 2020.
The metro areas of Miami, Phoenix, and Las Vegas saw the highest rent growth at 33%, 19.4%, and 16.7%, respectively. New York City, St. Louis, and Washington D.C. all saw rent growth below 6%.
Like the home prices, single-family rent prices have been impacted by increased demand for more space during the pandemic.
“Single family rentals in the suburbs and exurbs have been in strong demand by people that need things like an office from home or space to school kids from home,” said CoreLogic chief economist Frank Nothaft. “On average, the square footage of a single-family rental is double what you get in a high-rise apartment.”
Nothaft also pointed to the improving economy, increasing employment, and (hopefully) waning pandemic giving more people the financial freedom to venture out and find their own places to live, known as household formation. This creates more demand for all housing types, including single-family rentals, and raises the issue of basic supply and demand.
Like the housing market, the single-family rental market is facing a severe shortage of supply. Single-family rentals vacancies were low heading in the pandemic and increased demand has decreased vacancies to their lowest rate in a generation, said Nothaft.
But like the purchase market, Nothaft foresees a softening of single-family rent prices in 2022.
“I think we’re near the peak. We might continue to see some big-time double-digit rent growth numbers,” Nothaft said. “But I think we’re at or near the peak and over the course of 2022 we’ll see the 12-month growth rate gradually decline for the single-family market.”
In November, rent growth for detached single-family homes decreased for the first time since early 2020. Prices grew by 12.1% year over year, down from 12.3% in October.
Price growth for attached single-family homes continued to increase in November at 10.3%.
Nothaft pointed to a few things that could shift the balance of supply and demand. First, as the pandemic wanes, more tenants will be willing to move back to high-rise multifamily buildings in urban areas, taking pressure off of the single-family rentals in the suburbs and exurbs.
Second, investors big and small are buying up single-family homes and making them available for rent, sometimes several hundred homes in one swoop. While this can create more competition in the purchase market, it will increase single-family rental supply.
Record rent and home prices increases during the pandemic have eroded housing affordability and left many movers between a rock and hard place. However, most economists and housing authorities are forecasting for the market to cool in 2022.
“I just don’t see how home prices can grow another 18 percent in 2022,” Nothaft said.