A decline in rent growth for single-family homes brought on by the pandemic appears to have stabilized. The CoreLogic Single-Family Rent Index shows that it moved higher in July at a year-over-year rate of 1.7%. (1) It had sunk to 1.4% in June. While that’s good for the nation, metros vary and some have more catching up to do than others.
The pandemic swept across the country in February, forcing businesses to close and leaving a huge number of people unemployed. Many single-family landlords lowered their rents to keep tenants in place. That brought a steady rate of rental increases in the SFR marketplace to a much lower level. According to data from CoreLogic, they were rising at an average of 2.9% during the first quarter of the year. From there, they slide to 1.7% in May and then 1.4% in June.
SFR Rent Growth Rebounds
By July, the economic reopening was well under way, and single-family rent growth returned to the 1.7% level. That’s below the level of growth at the start of the year, but it’s a positive sign for the market. The World Property Journal suggests that the landlord’s obligation to provide new safety measures has probably contributed to the rent growth slowdown. (2)
CoreLogic’s principal economist, Molly Boesel, said in a statement, “Increases in single-family rent prices slowed dramatically this spring as the nation began to face the economic impact of the pandemic. As job losses slowed in July, rent growth steadied.” Looking forward, she says, “Increases in rents should remain sluggish until the economy starts to experience employment gains.”
The data for this report is for July, and we are seeing employment gains, so we should presumably get a good rent growth report for August. The national rate of unemployment for July was 10.5%. That dropped down to 8.4% in August. CoreLogic is set to release rent growth numbers for August at the end of September.
Jobless Rate vs. SFR Rent Growth Rate
Meantime, it’s important to note that both the jobless rate and the rent growth rate vary from market to market. At least some of the time, it also appears that those two coincide with each other. Los Angeles is one example with a high rate of unemployment and rent growth that turned negative in July.
Data for July shows L.A. with 17% unemployment and a -.4% rate of rent growth for single-family homes. That’s 3.7% lower than it was in July of 2019 and the biggest decline in SFR rent growth for the U.S. But it’s not the worst. Honolulu gets that honor with a July rent growth rate of -1.3%. It also had a better unemployment rate than L.A. at 11.1%, so the idea that unemployment and rent growth track each other doesn’t apply as strongly to this metro.
At the other end of the spectrum was Phoenix with the best rent growth on the list, at 4.7%. Tucson was right behind Phoenix at 4.1%. Third on the list was Charlotte with 3.4%.
Best Rent Growth Among Low-Priced Homes
The take-away here is that rent growth is very specific to local markets. It’s also specific to the pricing level of the homes. CoreLogic identified four tiers, with the best rent growth performance among the lower-priced homes. Rent growth, on average, was 2.6% for those homes compared to 3.7% in July 2019. At the other end, rents for the higher-priced homes were only up 1.4% in July compared to 2.5% last year.
If you’d like to get a list of metro areas expected to have the best rental returns over the coming years, along with higher appreciation than most markets, visit newsforinvestors.com.
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