Why More People Are Renting Homes Instead of Buying
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What is the main topic discussed in this episode?
Here's your money briefing for Monday, January 11th. I'm J.R. Whalen for The Wall Street Journal. The pandemic has sparked what you might call a space race. Millions of Americans are planning to move out of large cities in search of more space and settle into a new home, even if tight personal finances prevent them from buying. That has sparked a construction boom of homes for rent.
So you have seen in the last 10 years a dramatic decrease in the number of homes, new homes that you can buy for under $200,000, while you've seen a surge of those that you can buy for, say, $400,000 or $500,000 and up. And what that's done is it's created a really big dearth of that home for people who are in between an apartment but don't have the wherewithal to buy a house.
Our reporter Ryan Dezember has been tracking the growing market for rental homes. He'll be here to talk about it after the break.
What is driving the recent boom in single-family homes built for rent?
You have to go back to 2007, just before the last housing crash, to find as many single-family homes under construction as there are today. But most of these homes aren't for sale. Some home builders are rushing to build houses for rent. Our reporter Ryan DeZembra is here to talk about the trend and how it fits into the broader housing market. Ryan, thanks for being with us.
Thank you for having me.
So how big a market for homes being built specifically to rent are we talking about?
Well, we don't actually know the exact number because a lot of sales fly under the radar. But for those that we can track, we know that there were about 50,000, more than 50,000 purpose-built homes, specifically built to be rentals, for the 12 months ended on September 30th, the third quarter. That's about 20,000 more than the average over the last 40 years.
How large is the market for purpose-built rental homes right now?
You might imagine it varies quite a bit from year to year. But that seems to be a severe undercount these days, given how many builders are selling homes in bulk packages, what they call wholesale, to investors, and how many investors are just going ahead and building homes for rent where they don't specify that as the end use on the building permit. So we don't really know the full number, but the minimum that we know, we know is at a record.
And how long has the rental market been so strong?
The rental market is extremely hot, particularly for single family homes. And that started, you know, that was starting already as millennials got older and were looking to move to the suburbs, but maybe had too many student loans or not enough save for down payment. The pandemic has really accelerated all that. People who are working from home are looking at wanting an extra bedroom so they can build a home office. They want a yard for the kids and the dog to play in, space from their neighbors because they're home all day, maybe a proper kitchen and dining room that their apartment didn't have. So home rentals have been extremely hot.
Why did the pandemic accelerate demand for rental single-family homes?
The big home rental companies like Invitation Homes and American Homes for Rent and Tricon Residential, which own, you know, tens of thousands of homes apiece, they're all reporting record occupancy lately. They are raising rents on new leases faster at a greater rate than they ever have before. And they're really having a hard time keeping up with demand for rental homes.
Okay, so the rental market is hot, but mortgage interest rates are at a record low. What's keeping people from buying?
Well, the big issue is, like you said, mortgage rates last week hit a new record low of around, I think it was 2.65. We've never really seen anything like that. That's enabling a lot of people to buy homes, of course, and encouraging them to buy. The problem for many people is they don't have the down payment. There's also a lot of other people these days that don't want to buy a house. There's a lot of people who move around a lot for their jobs, much more than we used to as Americans. There's also millennials who are sort of testing out the suburbs before buying, moving out of cities, establishing families, but maybe not yet ready psychologically or financially to buy.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:05–1:04
2
What is driving the recent boom in single-family homes built for rent?
1:04–1:55
3
How large is the market for purpose-built rental homes right now?
1:55–3:00
4
Why did the pandemic accelerate demand for rental single-family homes?
3:00–4:29
5
If mortgage rates are low, what’s keeping people from buying homes?
4:29–5:48
6
How are rising home prices changing who can afford to buy vs. rent?
5:48–7:36
7
Where are builders locating rental homes and which price points do they target?
7:36–8:32
8
What are the long-term financial trade-offs of renting a house instead of buying?
8:32–8:50
Speakers
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