Record home prices force potential buyers to rent

Ready to continue this trend—the Federal Reserve has indicated it will Continue to raise short-term rates Single-family landlords say they are well-positioned to combat inflation as homebuyers who are high on rent have no option but to rent.

Rents for single-family homes rose 14% this April compared to a year ago, according to housing data provider CoreLogic, the 13th month in a row that rents grew at a record pace.

“The higher the rates go up, the better for this business,” said Bruce McNeilage, chief executive of rental home owner Kinloch Partners, at an industry conference last month.

According to CoreLogic, the lack of available existing homes was also a factor contributing to the increase in rents. Analysts say home builders are also expected to reduce how much they build with rate hikes and more home buyers reluctant to pay.

Housing Start, a measure of US home building, fell 14.4% in April to May, according to the Commerce Department. A separate measure of US home-builder confidence, the National Association of Home Builders said, fell for the sixth consecutive month in June to its lowest level in two years.

In contrast, 74% of single-family landlords surveyed this May by John Burns Real Estate Consulting LLC said they expect to see strong or very strong leasing activity over the next two quarters. This response was below the high of 91% during 2021, but still above where sentiment was before the pandemic.

invitation house Inc.,

One of the largest rental homeowners of owned homes said earlier this month that its rental rates during the first five months of 2022 continued to rise at a higher pace than last year. Its homes occupy 98% and the resident business is at an all-time low, the company said.

“Demand is getting stronger and stronger today,” said publicly traded CEO David Singlin.

American Homes 4 Rent,

In May industry conference.

Smaller operators like Mr. McNeil’s say they are having similar success. “Due to supply and demand, we are increasing fares by about 15%,” he said, “which is well below our peers in many areas.”

Still, it’s not all good news for these companies, and there are some challenges. Shares of three publicly traded rental-house landlords—Invitation House, American Home 4 Rent and

Tricon Residential

– each has fallen by more than 17%, in line with the decline in the broader stock market. Some analysts say investors may be confusing the fate of single-family rental companies with a slowing housing market for sales.

Most analysts also say that the current pace of fare hike is not sustainable. Renter finance is being pushed to its limits in more cities, according to a new report by Moody’s Analytics. Moody’s found that since the end of 2019, the percentage of US metropolitan areas where the average earner must spend more than 30% of their income on apartment rentals has increased from 8% to 23%.

John Pavlovsky, an analyst at real estate analytics firm Green Street, said that if rents are pushed up too high, it could lead people to double-up in apartments and homes, leading to higher vacancy rates and potentially higher rates of unemployment. Less than the rent may increase. Others note that if the economy falls into a recession, this is also likely to put pressure on rents.

But so far this is not happening. Trends such as remote working continue to drive demand for the additional space afforded by single-family homes. “Household values ​​may very well go down, but I don’t see rents going down that much,” said Mr. Pavlovsky.

write to will parker will.parker@wsj.com and Nicole Friedman et nicole.friedman@wsj.com