The Expert Podcast

For those of you wondering what's going to happen to rental home and rental apartment prices, there's some information buried in an article from The Wall Street Journal that tells you exactly what's going to happen to rental rates for both single-family homes and apartments in the market. This also affects the prices of home purchases. It has nothing to do with interest rates per se, and that's a subject for another video, but it does shed light on what’s happening to rental rates.

The article is essentially a “cry me a river” story from landlords who can’t find houses to buy. These aren’t just any landlords; we’re talking about the biggest landlords—large hedge fund companies and investment firms that are buying up new or resale homes, taking them off the market for end-users, and renting them out to tenants. Once you get past all the commentary about landlords struggling to find listings and having too much money, the article highlights a significant point:

There’s rarely been a better time to own tens of thousands of single-family rentals. The companies mentioned, such as AMH and Invitation, represent two key players in this rental market. As you read through the article, it becomes clear from industry analysts that these landlords have what is called “pricing power.” This means they have the ability to raise rental rates because the current economy supports it.

The economy is still reasonably healthy. While people are struggling, many still have jobs, and wage growth remains solid. However, wage growth doesn’t necessarily mean people are making enough to pay the bills. For example, someone might get a 4% raise, but their rent could go up by 28%. The barriers to homeownership are staggering, with median home prices around $460,000 and interest rates hovering near 9%.

This creates a favorable situation for rental companies. These companies can raise rents because high home prices and interest rates are preventing people from buying. AMH rents, which currently average $2,000 a month, could rise more than 30% and still be cheaper than buying a comparable house. That’s because, even if rents increase, buying a home remains out of reach for many due to credit requirements, income levels, down payment needs, and limited inventory.

The article notes that rental rate increases have been aggressive but have not kept up with home price appreciation. Rental companies already use algorithms to determine rent hikes, so it’s clear that rental rates will continue to rise. While not every landlord will raise rates—smaller mom-and-pop landlords might avoid doing so to retain good tenants—the larger corporate landlords are likely to continue raising rates.

Interestingly, these large landlords often buy properties from smaller landlords who haven’t raised rents and then immediately increase the rates. They have the resources, legal teams, and marketing strategies to do so without hesitation. This trend is expected to continue, keeping housing prices stable because demand for homes still exceeds supply. Sellers aren’t likely to reduce prices drastically because there’s still competition from buyers.

The troubling takeaway is that homeownership remains out of reach for many Americans, leaving plenty of room for rents to rise while still being cheaper than owning. The advice from the article’s perspective is to buy the cheapest house you can stand. Even if it’s not your dream home, owning it means avoiding rent hikes. Waiting for interest rates or home prices to drop may not be realistic, so acting sooner rather than later is recommended.