Slim inventory and apartment investors making up for the region’s low rents continue putting pressure on renters.
CoreLogic’s Single-Family Rent Index is up 13.6% from last year, and the outlook is from 14% growth.
Rentals have and continue to be a staple of the local housing market as inventory shortages in the single-family resales market plus rapidly increasing prices have shifted demand from the purchase to the rental market.
During the first quarter, there were 62,775 non-owner-occupied single-family and condo investment housing units in the 42-zip code area monitored by NETAR, according to Attom Data Solutions. Most were owned by mom-and-pop investors. The second-quarter average vacancy rate was 3.1%. The national average was 3.8%. It was 5.01% across Tennessee.
There were 6,441 apartment units in the region’s two major metro areas. According to the National Association of Realtors, vacancies were at 2.2% in the Johnson City metro area and 3% in Kingsport-Bristol.
The apartment market has become one of the hottest CRE assets because rising mortgage rates tend to shift demand toward multifamily rentals. Currently, rents are rising faster than inflation and local wages.
Out-of-town investors are also flocking to tertiary apartment markets like the Tri-Cities area because the cap rates for apartments are just below the national average.
“The local region has definitely started to catch the attention of outside developers and inventory,” Shane Abraham, founder and principal of Universal Development and Construction in Johnson City said. “Historically, rents here were too cheap to promote new developments by large outside firms as their cost to develop is higher than the local smaller firms. The recent increases in rents and lack of developable land in outside markets have driven new attention to our region.”
The surge in apartment rents is a by-product of higher home prices, higher mortgage rates, relocation buyers, and the local, new house formation by Millennials and the older members of the GenZ residents.
Both home prices and rents are rising faster than local wages and, of late, faster than the inflation rate. That’s putting pressure on housing affordability. Whether it’s rent or mortgage payments, the general rule is to keep monthly housing costs to less than 30% of income.
Local rental prices are likely to remain high, but there should be some cooling from the accelerated pace of the past year and a half – especially if demand begins to wane.
Applied to the current local median household incomes, here’s the 30% affordability target for the local major city markets.
- Bristol – $1,052
- Elizabethton – $950
- Greeneville – $1,026
- Johnson City – $1,054
- Kingsport – $1,052
2020 Census data show that almost 10% of local renters were paying 30%-34.9% of their income on housing. Another 36% were paying 35% or more.
Categories: REAL ESTATE