As the housing market continues to be marked by high mortgage rates and record-breaking home prices across many U.S. regions, renting continues to play a pivotal role for millions of people. Currently, more than 44 million U.S. households rent their homes, a figure that is expected to continue to rise as economic conditions make homeownership less and less attainable. The median home sales price in late July was $412,300, a slight decrease from the previous three months, yet still 28% above the second quarter of 2020, according to data by the Federal Reserve Bank of St. Louis.
Yet the nation’s biggest renter cohort, Millennials, are beginning to seek more space as they establish families. This has resulted in growing demand for single-family residences, particularly as purchasing these homes remains out of reach for many.
The cost of acquiring a home continues to rise, with the national median mortgage payment coming in at $2,256 in April, according to the Mortgage Bankers Association. This figure does not account for additional expenses associated with homeownership, such as maintenance, repairs, taxes, and insurance. These so-called hidden costs can add about $1,500 per month on top of mortgage obligations, according to research by Bankrate.
The typical asking rent for a single-family home in May was $2,262, a 4.7% increase from the previous year, according to Zillow. In comparison, the rent for a unit in a multifamily building averaged $1,896, a 2.6% rise over the same period. The single-family rental sector has jumped 37.5% since the beginning of 2020. In 2001,10.9 million renters lived in single-family homes, accounting for just under 30% of all renters. This number grew to 14.3 million by 2021, representing about 33% of all renters.
In response to this demand for larger rental spaces, the build-to-rent sector is experiencing rapid growth. Construction started on about 18,000 single-family, built-for-rent homes in the first quarter of 2024, a 20% increase compared to the first quarter of 2023, according to the National Association of Home Builders. This rise reflects a growing trend among developers to construct homes specifically for the rental market, catering to those who desire the benefits of single-family living but might not have the means, or desire, to purchase.
Build-to-rent developments aren’t the only response to this increase in single-family rental demand. While the market for investors purchasing new homes has been slow, mom-and-pop buyers are surprisingly at the top, according to recent research by John Burns Research & Consulting. Insights from national surveys of homebuilders and real estate agents showed that about 69 percent of these investment sales were to individual investors, while only 4 percent were to institutional buyers with at least 10 properties.
As the U.S. housing market continues to navigate the challenges of high mortgage rates and home prices, single-family renting is likely to increase, offering an alternative solution for renters seeking a middle ground between multifamily apartments and homeownership. This continues to present a significant opportunity for agents, not just in helping their investor clients in purchasing properties but also supporting them in filling them with qualified tenants. Agents should seriously consider treating the single-family renter as a stable and reliable source of income for many years to come as well as an opportunity for lead generation.
Michael Lucarelli is the CEO of RentSpree.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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