It’s a troubling trend, at least for those working within the residential real estate realm. Homebuyer hopefuls priced out of the American Dream having to reluctantly continue to rent is one thing. But having some of those same folks shift gears and embrace renting upscale homes as a logical and worthy long-term alternative is quite another.
And yet, that is what is starting to happen in many places. Maybe not on a grand scale, but on one that is at least somewhat decreasing the number of yearly home sales, taking buyer and seller agent commissions with them. And while agents do represent rental homes on occasion while pursuing buyer and seller clients, closing on a rental contract produces just a small fraction of what a sale commission would.
What’s driving the rental market’s burgeoning popularity, to a great degree, are corporations devoting large sums to purchasing and/or building homes purely to rent, rather than resell.
RISMedia asked a variety of real estate professionals for their thoughts on rentals, and whether they were feeling their effects on their business.
“What am I seeing in the rental market? Explosive growth in rental community development,” says Suzy Minken, an agent with Compass, in Short Hills, New Jersey. “They are sprouting like weeds! And the luxury amenities are extensive. The price? Yup. They are expensive, rivaling the price of a monthly mortgage payment.”
But just as the industry tries to right itself after policy changes and lawsuits, the inventory issue looks to become an even bigger challenge as companies buy and rent or build and rent houses. A Wall Street Journal story took a deep dive into how Wall Street companies are buying or developing single-family homes to rent. Indeed, numbers from the National Association of REALTORS® (NAR) regarding built-for-rent housing starts are on the rise.
What do agents and brokers, still adjusting to the new post-Burnett ways of doing business, think of this new and growing competition?
Josh Jarboe, broker/owner of RE/MAX Empire Buyers in Kentucky, recognizes what’s happening, but postulates that renting now may simply be a strategy for some.
“We’re noticing a clear trend of prospective buyers opting for long-term rentals instead of purchasing a home,” he says. “High interest rates, limited inventory and inflated prices have created significant barriers to entry for many would-be buyers. Some see it as a strategic move to ‘wait it out’ until market conditions improve.
“However, I caution against this mindset because ‘time in the market’ is far more valuable than trying to ‘time the market.’ Delaying a purchase often leads to higher costs down the line due to increased competition and missed opportunities for home appreciation. I remind buyers that the interest rate on rent is always 100%, meaning they’re building equity for someone else instead of themselves. Others simply feel priced out altogether. This shift has been most apparent among first-time buyers, who are finding it harder to qualify for homes with today’s elevated monthly payments. As a result, many are turning to rentals, hoping for future relief in rates or inventory.”
Sabina Boboc, a communications strategist with Point2Homes, a real estate marketplace focusing on houses for rent, claimed in an email that the notion that those who can’t afford to buy a home are stuck renting cramped apartments is way off base.
“Owning a home isn’t the only way to enjoy space and privacy,” she wrote. “Single-family rentals are stepping up with roomy layouts, low-maintenance living and great amenities. Analyzing their sizes across the country’s largest metros revealed a surprising trend: It’s not house rentals in Texas or Arizona leading the way, but those in East Coast metros, where homes offer 1,700 to 2,000-plus square feet, plus perks like pools and fitness centers.”
A Point2Homes report claimed that “the love affair with the single-family home has been changing.” As incomes are slowly creeping up, but home prices and mortgage rates remain prohibitive, more and more renters are looking for their own win-win property scenario: How could they enjoy the space a single-family home provides and also avoid the stress that comes along with affordability, mortgage rate fluctuations and maintenance? Enter the house rental.
“The average house rental in U.S. build-to-rent communities boasts two-and-a-half bedrooms and two bathrooms, spanning 1,355 square feet,” the report continued. “That’s less than the typical for-sale single-family home, which reached 2,480 square feet in 2021. However, given the zoning constraints that developers face when building houses for rent and their desire to balance affordability and profit, house rentals in build-to-rent communities emerge as the best option for renters looking for that extra bit of space, convenience and peace of mind.”
Renting while waiting to buy is a sound strategy Janen Ardia, broker/owner of RE/MAX Heritage Properties in Flanders, New Jersey, acknowledges.
“Rentals have become a mainstay in a market still recovering from a hyper-priced pandemic set of circumstances,” she says. “The exhaustion buyers feel from multiple offers on houses has caused them to take a deep breath and rethink their options; thus, the respite of a rental, even for a year. Rentals have an excellent impact on the market. They help to diversify marketplaces and give future buyers the ability to assess the markets that they would like to purchase, or not, in.”
As 2025 beckons, many prognosticators see the same issues—mortgage rates in the sixes, low inventory and high home prices—mirroring those of 2024.
NAR’s predictions for 2025 affirmed the above, with affordability also a thorn in buyers’ sides.
In his annual Bold Predictions for 2025 market outlook, Brian Buffini, founder and chairman of Buffini & Company, along with Lawrence Yun, chief economist at NAR, both voiced cautious optimism for the year ahead, seeing many fewer agents in the business after a topsy-turvy year-plus of lawsuits and other negativities.
Pam Rosser Thistle, an agent for Berkshire Hathaway Homeservices Fox & Roach, REALTORS® in Pennsylvania, gets both sides of the story.
“There are more ‘forever renters,’ people who feel that buying a home is out of reach, or they enjoy traveling and don’t want to be tied down,” she says. “Also, hybrid and remote work make people less likely to feel like they must be rooted in one place. The market has responded (or maybe created) with fancy, all-inclusive rental buildings that are alluring. My young adult kids live in places like that.
“But I always feel a sense of accomplishment and happiness when a first-time buyer is able to purchase a home, enjoy homeownership and start wealth-building. It is happening less. The competition with cash buyers and stronger entities is more pronounced now. I think regulation of companies buying too many properties is needed. However, we are going into an administration of less regulation (which has its perks and downfalls), so that is unlikely to happen right now.”
Regarding that, in a summer news conference, President-elect Donald Trump addressed housing affordability in the U.S. with a plan to spearhead the building of new homes.
“We’re going to open up tracks of federal land for housing construction,” he said. “We desperately need housing for people who can’t afford what’s going on now.”
Debbie Lang, with Berkshire Hathaway HomeServices (BHHS) Fox & Roach, REALTORS® in Princeton, New Jersey; and BHHS Florida Realty in Boca Raton, Florida, feels some potential buyers who turn to renting may simply need to lower their homeownership goals.
“I have ridden the wave of many economic real estate markets since 1986,” she says. “There will always be those who prefer to rent for the flexibility to relocate and to limit their expenses, as well as those who value homeownership. But homeownership is still the best retirement plan in America. Some buyers may need to adjust the size, location and price of the home to be able to purchase one now. There are always homes to buy as sellers have to sell for various reasons.”
Though just in the formative stages, there are multiple bills at the state and federal levels that seek to limit corporate ownership of homes. Earlier this year, a California lawmaker’s proposal sought to ban companies from owning more than 1,000 homes in the state. Another one in Nebraska sought to forbid out-of-state hedge funds and other companies from buying single-family homes. On the federal level, two congressional bills, the Stop Wall Street Landlords Act and the End Hedge Fund Control of American Homes Act, have been introduced to limit corporation homeownership, recommending taxes and outright bans.
“The government has no business restricting companies from buying up houses for future rentals,” asserts RE/MAX’s Ardia. “These conditions exist at present; major developers are building new complexes and keeping it ‘in house’ with leasing agents, etc. Sellers have the right to decline offers, but how would the government have the right to interfere with sellers accepting offers from the best buyer, and what right does the government have to limit what anyone can buy?
“There are zoning laws and affordable housing requirements in place to best serve the public, thank goodness, but to restrict buying and selling is wrong on so many levels.”
Whether formal legislation gets passed or succeeds is anyone’s guess. Jarboe, for one, applauds the effort, but takes a wait-and-see approach.
“I’m not convinced it will happen anytime soon,” he says. “There’s certainly growing political pressure and public frustration with large corporations controlling a significant share of the housing market. However, these companies have deep influence and lobbying power, which makes sweeping federal action unlikely in the short term.
“If anything does happen, it’s more likely to be in the form of tighter regulations, tax penalties or incentives for homeownership rather than an outright ban. That being said, if the housing affordability crisis continues to escalate, public demand for action may force lawmakers to reconsider. For now, it’s something to watch, but I wouldn’t expect drastic measures overnight.”
