Single-family rent prices were on an upward path early this year, driven primarily by continued growth at the lower end of the market. In fact, rents rose 3.3% over the year in February, charting their biggest annual jump since August 2016, according to CoreLogic’s Single-Family Rent Index released Tuesday.
Overall, single-family rents have been on the rise over the past decade, but they have decelerated somewhat since reaching a peak of 4.2% in February 2016, according to the index.
While rents have grown overall across the market, rent price growth at the lower end of the market has been rising at a higher rate than the higher end of the market since April 2014. However, CoreLogic noted that the gap is closing.
CoreLogic defines lower-priced rentals as those with prices lower than 75% of the median rent in their region. High-priced rentals are those that have rental prices more than 125% of the median rent in their region.
At the lower end of the market, rents charted a 3.6% year-over-year increase in February, down from a 4% annual gain recorded in February 2019.
However, this rate is still higher than the 3% increase recorded at the high end of the market. Also, illustrating that narrowing gap between rent growth at the high and low ends of the market, CoreLogic mentioned, high-end rent growth is up from a 2.6% growth rate recorded in February 2019.
CoreLogic attributed persistent rent growth to rental home inventory lagging demand.
Among the 20 large metro areas observed, Phoenix had the highest rate of annual rent growth in February at 6.2%. The metro was followed closely by the Seattle metro, where rents grew 6.1% over the year in February.
Phoenix’s rent growth can be attributed in part to its strong economy and growing employment. In fact, employment grew 3.2% in Phoenix in February compared to 1.6% across the nation overall, according to CoreLogic.
Other factors that can cause accelerated rent growth in a market are low vacancies among rental properties and limited construction.
Detroit was the only metro to post a decline in rents in February with a 2.2% annual.
Honolulu, Miami, and Philadelphia all posted rent growth under 2% in February.
February’s overall rent growth took place alongside strong employment growth for the month, but the departure that took place in March will likely make waves in the rental market.
The spike in unemployment sparked by the COVID-19 pandemic “has disrupted the typical rental demand and supply dynamic, which will ultimately impact rent growth in coming months,” according to CoreLogic.
While noting that demand could detract in the short-term, Molly Boesel, principal economist at CoreLogic said Tuesday, “However, as we look ahead to an economic recovery, consumers may begin considering single-family rentals over multifamily options to provide more space for at-home offices and distance from other housing units.”