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Rent Price Trends—Industry Implications

House for rentAccording to the June 2018 National Apartment List Rent Report, the national rent index increased 0.4 percent month-over-month (MOM), which makes four months of rent increases in a row. Apartment List notes that this upswing in rent growth is consistent with the onset of the summer season, the busiest time of year for rentals. June’s rent price increase is the largest jump seen since last July, and Apartment List’s report predicts that growth will continue through the summer months.

However, year-over-year (YOY) rent price growth has actually decreased over the past several years. June 2018’s YOY growth was 1.5 percent nationally. A year ago, that number was 2.8 percent, and May 2016 clocked a 3.2 percent rate. As Apartment List explains, “Rent growth is pacing a full percentage point behind the overall rate of inflation, which stands at 2.5 percent as of the latest data release, and is similarly lagging growth in average hourly earnings which have increased by 2.6 percent over the past twelve months.”

Rent prices increased MOM in 85 out of the 100 largest cities, as compared to 78 of those cities the month prior. Orlando, Florida, leads the pack when it comes to rate of rent price growth, clocking in at 6.7 percent YOY. However, as in many other markets, that growth has been decelerating in Orlando in recent months. In second place, Salt Lake City, Utah, registered a 5.4 percent YOY growth, and Knoxville, Tennessee, came in at 4.9 percent growth. On a state level, Nevada clocked the fastest YOY rent growth at 3.9 percent.

Very few cities saw YOY rent price declines, but Baton Rouge, Louisiana, saw the biggest drop between 2017-2018, coming up with a 2.0 percent rent price decrease. Among the states, Hawaii showcased the biggest YOY rent price decline at 2.4 percent.

A recent report by Freddie Mac Multifamily found that, among renters, 67 percent say they believe renting is currently more affordable than owning a home, and 66 percent say they are satisfied with their rental experience. Moreover, 55 percent of renters say they believe their next residence will be a rental, according to the survey. The preference is notably more pronounced among older generations. Just seven percent of millennials stated they had no interest in owning a home, while 19 percent of Generation X renters and 35 percent of baby boomer renters reported the same sentiment.

“Indeed, we are witnessing a historic shift in preference among older Americans, as they increasingly are choosing the size, convenience, and affordability that renting offers over ownership,” said David Brickman, EVP and Head of Freddie Mac Multifamily.

That all suggests that single-family rental homes, as a compromise between apartment living and full homeownership, will likely continue to be a haven of opportunity for savvy investors.

Click these links to read more about the market's ongoing affordability and inventory shortage problems, and click here to read the full Apartment List report.

About Author: David Wharton

David Wharton, Managing Editor at the Five Star Institute, is a graduate of the University of Texas at Arlington, where he received his B.A. in English and minored in Journalism. Wharton has over 16 years' experience in journalism and previously worked at Thomson Reuters, a multinational mass media and information firm, as Associate Content Editor, focusing on producing media content related to tax and accounting principles and government rules and regulations for accounting professionals. Wharton has an extensive and diversified portfolio of freelance material, with published contributions in both online and print media publications. Wharton and his family currently reside in Arlington, Texas. He can be reached at David.Wharton@theMReport.com.

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