Appraisals and ValuationsReal Estate

Rental market finally starts cooling down

When renting can outweigh buying a home

The national average rent held steady for the fourth consecutive month in September, indicating the market may be starting to cool off, according to the latest report from RENTCafé.

This lack of growth over the past four months represents the longest period of stagnation in recent history and the slowest annual growth rate in six years, according to the report, compiled by the nationwide internet listing service that enables renters to find apartments and houses for rent throughout the U.S.

Rent prices increased an average of just 2.2% annually to $1,354 in September.

“The housing market follows a cyclical path,” said Doug Ressler, senior analyst at Yardi Matrix, RENTCafé’s sister division that researches the apartment market. “The fact that the prime summer seasonality did not cause significant rental growth is the latest signal that the market may be cooling.”

“However, these changes will be felt gradually, first in the largest and most expensive cities, followed by mid-sized markets, and eventually trickling down to smaller towns,” Ressler said.

Even some of the most notoriously expensive markets such as Manhattan, San Francisco and Boston saw a halt in monthly rental price growth, the report explains. Now, the pressure is beginning to mount in smaller and mid-sized cities.

For example, Midland, Texas and Odessa, Texas, which used to attract households looking for more affordable rents, each saw double-digit growth in rent prices from last year at 24.7% and 20.7% respectively. However, Lubbock, Texas, the one of the closest major cities to these two smaller towns, saw rent prices drop 3.4% from last year.

And as rents cool off, some studies are even beginning to reconsider the financial benefits to renting over owning a home. A new study from Trulia found that while buying almost always outweighs renting, there are exceptions.

Trulia’s study compared the benefits of buying a starter home with a 30-year fixed-rate loans and a 20% down payment and living in the same place for seven years to renting…with a roommate.

Roommates are becoming more and more common, and about 20% of Millennials current live with one – a 115-year high.

Under these circumstances, renting with a roommate is an overwhelmingly better option than buying a starter home in some of the nation’s most expensive markets such as San Francisco and San Jose, where the savings amounted to 16.5% and 21.9% respectively.

However, in other markets such as Austin, Texas, Sacramento, California and Ventura County, California, renting with a roommate still outweighs buying, but only just barely.

But without a roommate, buying still outweighs renting across the largest 100 metros. However, flat or decreasing rent prices combined with increasing interest rates narrowed the gap considerably. Buyers in Jose, California, save an average 6.5% compared to renting. This is down from a savings of 18.6% last year.

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