By Tyler Durden
Having previously covered the record surge in rents (here and here), which represents a dramatic reversal from last year’s rental plunge, overnight Bloomberg did an in-depth look into the rental market, and its findings – which won’t come as a surprise to anyone – can be summarized as follows: “soaring prices, competition, desperation” as the bubble facing homebuyers is rapidly spilling over into the rental market.
Unlike previous years where the rental frenzy was focused on some of the largest cities, this time landlords from Tampa, Florida, to Memphis, Tennessee, and Riverside, California, are jacking up rents at record speeds. And similar to home sales, for each listing, multiple people are apply, forcing some renters to check into hotels while they hunt after losing out too many times.
The following quote from Tampa realtor Shannon Dopkins summarizes the prevailing market frenzy: “Any desirable rental is going within hours, just like the desirable sales. One woman passed on a place that was beat up with water damage. Somebody else decided to rent it.”
After a sharp slowdown last year when many young people rode out lockdowns with family, the rental market is now seeing record demand (although that too may reverse again if there is a new round of lockdowns), there has been a just as aggressive reversal in the market, as the number of occupied rental-apartment units jumped by about half a million in the second quarter, the biggest annual increase in data going back to 1993, according to RealPage.
A key reason for this record, price indiscriminate scramble for rentals is that the for-sale market is even crazier. Since people need to live somewhere, amid soaring prices and even more aggressive bidding wars in the for-sale market, would-be home buyers who end up getting the short stick are being forced back into rentals.
Adding to the concurrent demand, young Americans are also looking for their first apartment are competing with others who delayed plans because of Covid-19. Meanwhile, an army of remote workers and their high paychecks, are moving to lower-cost areas. And small single-family home and condo landlords, tempted by high prices, are cashing out, leaving their tenants desperate for another place.
“The entire housing market is on fire, across the board from homeownership to rental, from high-end to low-end, from coast to coast,” said Mark Zandi, chief economist for Moody’s Analytics. “It’s a basic need but it’s increasingly out of reach.”
Unfortunately for would be renters it gets even worse, as compounding the demand-driven price surge is a sharp drop in available supply thanks to eviction bans: whereas normally 6% of tenants are forced to vacate each year, the current eviction moratorium has meant that there is that much less supply, the result logically being even higher prices.
And then there is Wall Street, which is quietly gobbling up any available rental properties with the sole intent of pushing prices even higher (see “Blackstone Bets $6 Billion on Buying and Renting Homes“)
It all adds up to what Mark Zandi, said is the worst shortage of affordable housing since at least the post-World War II period.
To be sure, smelling a revenue bonanza, developers are adding new supply, but it will take months if not years before the new rental properties hit the market. In the meantime, the squeeze will have economic consequences because workers can’t easily move for jobs and will have less to spend on things other than housing.
Soaring rental costs also of course a contributor to the Federal Reserve’s inflation expectations. However, as even Bloomberg now admits, they “may not yet be accurately reflected in some measures.” Owners’ equivalent rent of residences, which makes up almost a quarter of the consumer price index, rose just 2.4% in July from a year earlier according tot he Fed.
That figure “lags the reality” because it’s based on a survey of homeowner expectations about what their home would rent for, Zandi said. A figure derived from real-world prices, such as the one compiled from Apartment List, indicates that rents are actually rising at least twice as fast as what the government is representing, and are currently soaring at a roughly record 5% annualized pace in July.
Yet nowhere is the pricing surge greater than in the Sun Belt cities that have seen an influx of arrivals from the pandemic amid an exodus from progressive liberal bastions as New York and San Francisco. The Phoenix area had the country’s biggest increases in rents for single-family houses in June, with an almost 17% surge from a year earlier, according to data released this week from Corelogic. It was followed by Las Vegas, with a 12.9% gain; Tucson, Arizona, at 12.5%; and Miami, up 12.4%.