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Rental market: ‘It’s hard to find a vacancy anywhere,’ RealPage VP explains

Jay Parsons, RealPage VP and Head of Economics & Industry Principals, joins Yahoo Finance Live's Zack Guzman and Akiko Fujita to discuss apartment rental demand hitting an all-time high and the outlook for the overall housing market.

Video Transcript

ZACK GUZMAN: Well, rentals are booming in the US as the real estate market recovers from the COVID-19 pandemic. And demand for apartments is soaring to new heights. In most major markets, apartment occupancy rates are holding steady above 96%. That marks the highest levels ever recorded. But will that momentum hold?

Joining us now for more on that is RealPage VP head of economics and industry principals, Jay Parsons. And Jay, you know, I think a lot of people last year experimented or experienced, I should say, some of this if they were trying to get apartments, like yours truly here. But record level occupancy doesn't make me think that any of that pressure is going to wind off in 2022. So what do you see shaping up?

JAY PARSONS: Yeah, it's been a remarkable year and a half for apartment demand, and really, demand for all types of housing. So, as you pointed out, record low vacancy in apartments, but it's the same story in single-family rentals and obviously for-sale homes. And so with that tightness across the board, it doesn't look like you're going to see tremendously more availability in 2022.

AKIKO FUJITA: I mean, what are we talking about? Is it just the major cities that are seeing that kind of occupancy? Or is it pretty much across the board? I mean, obviously, I'm based in New York. I've heard the stories. I know how competitive it's been. What are we seeing in other markets?

JAY PARSONS: Yeah, that's a good question. You know, what's unique about the current market is it's hard to find a vacancy anywhere. You know, we track 300 plus MSAs across the country. There are two that have high vacancy, and they are two tiny markets in Texas, Midland and Corpus Christi and maybe another one in North Dakota. But it's all over the country, every market at every price point. Everything is full.

And it's really unprecedented to see this much demand all across the country. It's not concentrated in any one spot. So where places like New York and San Francisco experienced a real roller coaster, where you had a lot of move-outs in 2020, followed by huge demand in 2021, the rest of the country really never saw many move-outs for the most part and then continued to see the same massive demand wave that started in the summer of 2020 and then really accelerated in 2021.

ZACK GUZMAN: Yeah, I wonder, too, how much of that really just came from concessions. I mean, you know, you're talking about kind of maybe-- and not every story is a New York story, but here in New York, there were a lot of concessions to get people in or have them stay in apartments in the pandemic. And now, I guess, maybe we're starting to get into some of the zones where those are rolling off. It's time to renew. And now people are staring down some pretty high prices now, too. So I mean, how does that shake out in terms of maybe pushing out some would-be renters if prices stay that high?

JAY PARSONS: Yeah, it's a great question. We really didn't see concessions, except in kind of core downtown areas like New York City and San Francisco and some central business districts across the country. Elsewhere didn't really see that. And the big concern was that exactly like you said, is that as those concessions wear off, that we would see a lot of people who weren't able to afford the rent. And thankfully, it's not been the case. We have seen unprecedented growth in incomes for apartment renters.

You know, we saw the average apartment renters made about $70,000 last year. It was up 12% compared to the year before. This is for new incoming renters. And so, you know, while the overall kind of tone on rentals has been fairly negative through the pandemic, the reality is the data has pointed a much more favorable story, where market rate rentals have really benefited from deep-pocketed renters, who are in stronger financial shape than ever.

And on the flip side, you have a very small share of renters who struggled to pay market rate rent prior to the pandemic. And that's largely who continues to struggle now. And that's really a different problem. That traces to the lack of affordable housing and funding for affordable housing across the country.

AKIKO FUJITA: Jay, you picked up right where my question was. I mean, how much of these high occupancy rates we're seeing right now has to do with the lack of affordable housing that's out there? I mean, if you're talking about people who can pay their rent, they're making decent money, what percentage of that, you think, is being held back right now from moving into ownership because of the inventory?

JAY PARSONS: Yeah, that's a really good question. You know, I think what's happening is that there's demand at all price points for all types of housing right now. So I don't think apartments are necessarily benefiting from the shortage in single family or, obviously, the affordability challenges in the rental housing market. I think you have-- you know, you look at the demographics. I'll spare you the details here. But there's a lot of good demand drivers for both apartments and for single family right now. And a lot of the household formation that's occurring at a really brisk clip are people who are generally starting out. They're going to look for an apartment first.

Now what's happening, obviously, is on older millennials and who are ready to buy a house, obviously, they're going to be staying put a little bit longer in rentals when they can't find a house to buy. And so but more likely they're going to end up in the single-family rental market because a lot of this, you know, we make about people sit down at the kitchen table and get the calculator out, say, should I buy or rent? But a lot of it's a lifestyle decision. And so if you're not buying a house, you're probably renting a single family house.

ZACK GUZMAN: Yeah, sometimes you just need a little bit more space, and that's all you got to look for. But when we're looking at mortgage rates, too, just to wrap up here, shifting from rental to buys, again, you know, we've expected those to tick up higher, now the highest level since spring of last year-- or 2020, rather. I mean, when you kind of dig through what that could do to maybe some record high prices in terms of home prices, how do you see that shaping up? Because, you know, I guess a lot of people maybe were already bracing for this.

JAY PARSONS: Yeah, you know, it's funny. You know, higher's always relative, right? And yes, it is going up compared to these record low mortgage rates that we've seen over the last year and a half or two years. But, you know, as you look at the mainstream forecast, I mean, even the most aggressive forecasts are putting mortgage rates around 4% at year end. And historically, you know, that's still a bargain. I mean, you go back a couple of years ago, and rates were actually above 4%. And so I don't think this is really going to move the needle very much.

There's been several studies shown that, you know, as mortgage rates go up, it doesn't really impact home buying unless there's a broader issue going on, like a recession or whatnot. And in fact, the last few times mortgage rates went up in 2013 and again, in 2017, 2018, we saw sales volumes continue to climb. So, you know, I think that like, you know, both rentals and homes, single family for-sale homes, I think we're going to see prices continue to increase, but not at the same levels that we saw in 2021. Mortgage rates play some part of that. But I think it's a broader story than just that. So bottom line, though, is I think we're going to see a ton of demand still. Mortgage rates just aren't going up enough to really move the needle.

ZACK GUZMAN: RealPage VP head of economics and industry principals, Jay Parsons there with a closer look at all that. Appreciate you taking the time.