by Wolf Richter, Wolf Street:
First cracks appear in Seattle’s crazy Rent Boom.
Median asking rents in some of the most expensive markets in the US have started to decline on a year-over-year basis, with landlords throwing incentives into the mix, even where incentives are rare. This has hit the formerly hottest rental markets: San Francisco, New York City, Boston, Washington D.C., Chicago, Miami, and Honolulu.
At the same time, rents are still rising in other cities. In Seattle, the median asking rent jumped 10% in November year-over-year, but even there, cracks are appearing. More on that in a moment.
I’ve been reporting on this spreading phenomenon for months, most recently for November rents, based on rents in multi-family buildings, often owned by institutional investors. These markets are experiencing historic construction booms of apartment and condo towers (many condos end up on the rental market).
But rents of single-family houses are not included in this data. That market tends to be the playground of mom-and-pop investors, though Wall Street and the financialization of rents have also muscled into it. This market is subject to different dynamics and has not experienced the same kind of construction boom. In San Francisco, for example, virtually none of the new construction over the past few years has been single-family.
I’ve been told that single-family rentals are still doing well even in places where multi-family is not. But now, according to a report on single-family rental markets in the US by HomeUnion, a real-estate investment management firm, the biggest markets with declines in multi-family rents are also seeing declines in single-family rents.
The report compares the rent of single-family houses in November to the rent of the same houses a year ago. And it also outlines the bifurcation now taking place in the US, with some markets still red-hot, and with other markets, particularly the formerly hottest markets, now turning dreadfully cold.
Here are the hottest 20 of the major markets:
And here are the coldest markets:
Every market has its own dynamics. For example, Oklahoma City and Houston are getting slammed by the oil bust, hence rents of single-family houses fell 4.6% and 2.8% respectively. Miami is suffering from an apartment and condo glut of monumental proportions that is now bleeding into single-family rentals and pushing rents down.
San Francisco and San Jose, the bookends of Silicon Valley, have experienced soaring rents for years. San Francisco has become the most expensive large rental market in the US. At the peak of the craze in October 2015, the median asking rent for a two-bedroom reached $5,000 a month, or $60,000 a year, which might require $80,000 or more in pretax income (depending on how good you are with your tax situation) just to cover rent.
But that was the median asking rent, for median incomes, not for the wealthy. The wealthy don’t like to live in median apartments. Clearly, this math doesn’t work. Since then, asking rents have dropped, for a two-bedroom by 10%. Plus, landlords are throwing incentives, such as one-month free rent, into the deal. Rents are suddenly negotiable. But it’s just the beginning. These things take years to play out.
And despite various assurances, the single family rental market has not been spared: house rents fell 5% year-over-year in San Francisco and 2.6% in San Jose.
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