Supply, demand and rent?

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Pandemic-related rental deals are gone. Rental prices are firing up, and the most recent data suggests it will continue to rise for the foreseeable future.

According to RealPage, a top real estate research and analytics provider, rental rates across the nation have grown an astounding 9.5% since the onset of the pandemic. Nearly double the national rate, the Grand Rapids MSA has experienced nearly a 17% increase in rents. What is driving this rapid increase?

Limited supply

The limited supply of new single-family homes has increased competition in the existing home market.

The national median sales price for new single-family homes hit a record high in June 2021 at $361,800. New, single-family home sales in 2021 are the fifth lowest in the past 30 years, with only the years of the Great Recession experiencing lower new home sales, according to the U.S. Census Bureau.

The higher prices and lack of availability are keeping would-be first-time homebuyers in the rental market, so the traditional circulation of renters is back-piled just like almost every other industry. There is not enough new supply in the rental market to support the growing demand. In Grand Rapids, 98% of apartments are occupied, which is up 1.2% from last year and 1.7% higher than the national average.

Recovering economy, growing jobs

The current increase in wage growth also is going to affect the housing and rental market.

The Grand Rapids area economy experienced a near 10% loss of employment growth in 2020, but that has rebounded with the most recent job growth reported by the Bureau of Labor Statistics in May, which showed 15.5% growth in jobs. In 2022, job growth is expected to be 4.1% and average just over 1% from 2023-2025.

As more jobs hit the market, there is such a large demand for employees that wages employers are willing to pay continue to increase. As of July, wage growth stands at 4.6%, while unemployment remains higher than pre-COVID levels. The increasing wage growth will lead to increased levels of expendable income, which will continue to push costs up in the housing and rental markets.

What is next? Will the trend continue? The short answer for the foreseeable future is yes. Many people are worried the most recent real estate boom is another “bubble” like 2009. If this is a bubble, the burst will not be caused by the subprime lending that occurred over 10 years ago. More than 70% of all existing mortgage originations on single-family homes have been to a borrower with a credit score over 760, while less than 2% have been to a borrower with a credit score less than 620, according to Equifax. Additionally, more than 96% of existing mortgages are current, while this number was below 88% in 2009. Expect inflation to keep climbing as demand booms, and with that, rental prices will be tougher to rein back in. Expect to see continued growth until there is a large uptick in new supply.

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