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The American housing market is transforming. With rising mortgage rates and a broader affordability crisis, a new trend is taking root: the construction of single-family homes designed specifically for rent, not purchase. This trend, known as “build-to-rent,” offers renters more options and the potential for more space for their money.
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- Build-to-rent homes surged by 20% in early 2024 due to rising mortgage rates and affordability issues.
- Build-to-rent homes doubled from 5% in 2021 to 10% in 2023, reflecting a significant focus on rental properties.
- Renting offers flexibility but requires careful assessment of responsibilities, location, and long-term plans.
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Is Renting a Single-Family Home Right for You Considering Growing Build-to-Rent Trend in the US
The Numbers Behind the Build-to-Rent Boom
The National Association of Home Builders (NAHB), a leading industry group focused on home construction in the United States, reports a significant surge in build-to-rent activity. In the first quarter of 2024 alone, nearly 18,000 single-family homes were started for rent, marking a substantial 20% increase compared to the same period in 2023. This considerable rise highlights the growing demand for these types of rentals.
Experts like Robert Dietz, Chief Economist at NAHB, believe this trend is directly linked to the rising cost of home buying. “When mortgage rates climb and buying a house becomes more challenging,” Dietz explains, “renting becomes a more attractive option for many people.” Molly Boesel, Principal Economist at CoreLogic, a real estate data analysis firm, echoes this sentiment. Boesel states, “People need a place to live, and if they can’t find what they’re looking for in terms of buying a home, they naturally turn to the rental market.”
A Doubling Down on Rentals
Data from the National Association of Realtors (NAR), a trade association representing real estate professionals, shows a dramatic acceleration in the pace of build-to-rent construction. In 2021, only 5% of all new housing starts were designated for rent. But by 2023, that number had jumped to 10%, representing a significant 100% increase in just two years. This suggests a major shift in how builders and investors approach the housing market.
Why Build Homes for Renters?
There are two main reasons for the rise in build-to-rent communities. First, these homes cater to a growing segment of renters who desire the benefits of a house—a private yard, more space, and potentially a quieter living environment compared to apartments. Second, for builders and investors, these single-family rentals offer a steady income stream through rent payments.
Considering Renting a Single-Family Home?
While the build-to-rent trend offers exciting possibilities, it’s essential to understand the critical differences between renting a house and buying one. Unlike buying a home, where your monthly payment goes towards ownership, rent payments go directly to the owner. This means you won’t build equity in the property over time.
Here are some crucial aspects to consider before venturing into the world of renting a single-family home:
Budgeting Wisely
While you won’t have a mortgage payment, renting a house still comes with costs. While renters typically aren’t responsible for major repairs, they might still be on the hook for things like yard maintenance or minor appliance breakdowns. Talk to a financial advisor or conduct thorough research to understand the cost of renting a house in your desired area. Remember to factor in potential utilities, maintenance costs, and any additional fees associated with the rental agreement.
Location, Location, Location
As with any rental, location is a crucial factor. Consider your proximity to work, schools, and essential amenities like grocery stores and healthcare facilities. Research the specific neighborhood and ensure it aligns with your lifestyle and needs.
Understanding Your Responsibilities
Don’t hesitate to ask questions! Before signing a lease agreement, it’s crucial to clearly understand who is responsible for maintaining the property inside and outside the house. Will you be expected to handle yard work or snow removal? Knowing these details upfront will help avoid any surprises down the road.
Thinking Long-Term
How long do you plan to stay in the house? Rental agreements typically have fixed terms, so a home might not be the most practical choice if you anticipate moving frequently. Consider your long-term plans and lifestyle to determine if a single-family rental is the right fit for you.
Beyond the Numbers: What Renters Can Expect
The Mortgage Bankers Association (MBA), an industry group for mortgage lenders, reports that the national median mortgage payment applied for by purchase applicants was $2,256 in April 2024, up significantly from the previous year.
According to the National Association of Realtors (NAR), this increase, coupled with rising home prices and a shortage of homes for sale, is pushing many potential buyers toward the rental market. As Molly Boesel of CoreLogic points out, “With the shortage of homes for sale, potential buyers either can’t find what they’re looking for or it’s too expensive.”
Additionally, with mortgage rates still hovering close to 7%, Boesel says monthly mortgage payments are keeping many potential buyers out, and “if they’re at the stage of life where they would rather be in a single-family home, a detached single-family home is going to be the next best thing.”
Rent vs. Buy: Weighing the Options
According to Zillow, the typical asking rent for a single-family home in May 2024 was $2,262, a 4.7% increase from the previous year. This can be compared to the rent price in a multifamily building in May, which was $1,896, up 2.6% in the same time frame. However, it’s important to remember that a mortgage payment is just one piece of the puzzle regarding homeownership. There are also “hidden costs” to consider, such as maintenance, repairs, taxes, and insurance.
Ultimately, deciding whether to rent or buy depends on your circumstances and priorities. Experts like Jessica Lautz, Deputy Chief Economist at NAR, recommend considering your budget and how long you plan to stay in the home. Renting may be a better option if you anticipate moving frequently or if your needs might change shortly.
Lautz also advises renters to understand their actual expenses and responsibilities. Ask the same questions you would if you were renting an apartment, and find out who is responsible for the upkeep of the property outside the home, such as yard work.
The Future of Build-to-Rent
The build-to-rent market is still relatively new, but it’s a trend with staying power. As the housing market grapples with affordability issues, build-to-rent communities will likely become an increasingly attractive option for renters seeking more space and a house-like living environment.
While renting a single-family home comes with its considerations, the rise of build-to-rent offers a valuable alternative for those who are priced out of the home-buying market or prefer the flexibility of renting. By carefully weighing the pros and cons and understanding the market trends, you can decide whether renting a single-family home is the right choice for you.
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