Rents Continue to Spiral Upward – With New Twist

On December 7, 2016, RentRange released current single-family rental data that included a few surprises. While many of the traditional hot rental markets continued to experience rent increases, there was a notable departure from the past several quarters’ trend of Sun Belt strength. The data identified emerging rental rate increases among the Rust Belt in areas like Pittsburgh, St. Louis and a trio of Ohio markets: Cleveland, Cincinnati, and Canton.

Rust Belt markets showing strength in single-family rental price growth while retaining strong yields in the third quarter of 2016.

Interestingly, Florida and California, whose markets have long dominated the ranking of highest increases, saw their top 25 list representation reduced by half in Q3 2016 compared to Q3 2015. Florida, in particular, is seeing rent increases finally stabilize nearly a decade after the housing crisis. One trend that remains the same, however, is the notable single-family rental rate growth in already expensive areas with robust, expanding economies and tight inventory. Seattle, San Francisco, and Portland all moved up on the list despite discussion of rents and real estate markets having plateaued, for example.

Here are the top 25 cities ranked by rent year-on-year rent increases for three bedroom single-family homes:

Historical yields are not a guarantee or otherwise necessarily indicative of current or future yields. All rental and yield data referenced is provided for information purposes only and should not be considered advice or otherwise be relied upon for investment decisions.
Here are the top 25 cities ranked by rent year-on-year rent increases for three bedroom single-family homes:

What Changed and What’s the Same

“The emergence of rental rate increases in several Rust Belt markets is creating a unique opportunity for single-family rental market investors to pursue both property value increases and high yields,” said Wally Charnoff, chief executive officer, RentRange Data Services. “For years, the Rust Belt has produced strong yields, but tepid property price appreciation has kept rents relatively flat, forcing investors to choose between property appreciation or yield. Strengthening economies in those markets combined with below average inventory and home buying challenges, such as homebuyers struggling to obtain mortgages, are creating the perfect environment for rental investors. At the same time, markets like Seattle and San Francisco offer less yield than these markets since prices are already very elevated.”

The gross yield is the total annual income an investor receives from an investment property divided by the price or value for the property. This figure does not account for any operating expenses, including property taxes.

Study Methodology

RentRange produced the rankings of three-bedroom homes using metropolitan statistical areas, a standardized method for identifying city centers and immediate suburban areas. RentRange gathers rental data on approximately 250,000 single-family houses per month from a variety of contractual sources, including multiple listing services, property managers, landlords and listing websites. Yields are derived from RentRange’s proprietary automated valuation model.

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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.