Low-End Rentals Propping Up Investment Growth

According to the latest update from CoreLogic, single family rents increased by 3.1% year over year in October 2019, up from a 2.9% increase in October 2018, and the rent increases were propped up largely by low-end rentals, defined as properties with rents 75% or less of a region’s median rent.

CoreLogic found that rents on lower-priced rental homes increased 3.6% year over year, while higher-priced rents increased 2.9% year over year.

Overall, data from Zillow revealed that the rental market has been stabilizing, even as rent prices have been rising and many Americans have put off homebuying.

Annual rent growth slowed to less than 1% in late 2017 before ticking back up. By the end of the year 2020, Zillow predicts rent growth will slow slightly once more, stabilizing in line with wage growth and inflation at a rate just under 2% annually.

"While the total amount of rent paid has increased each year this decade, that trend is by no means immutable," said Zillow Group Economist Joshua Clark. "With rental appreciation expected to decrease in the coming year and a homeownership rate that has been ticking up over the past few years, a small or even negative change in total rental spending could be in the cards in the early 2020s."

Rents are on the rise in the most recent months, according to the October Zillow Real Estate Market Report, falling in only two of the 35 largest metros, but as Zillow notes, this rate of growth has slowed in each of the past three months, but growth is expected to continue through the end of the year, notably in the single-family rental market.

According to realtor.com, investors are using the popularity of single-family rental to their advantage. Real estate investors purchased 7.7% of all homes in the second quarter of 2019, up 0.6% year-over-year, the most speculation the market has seen 2013.