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Rising Home Prices Hurting Rental Returns

Attom study: Between 2021 and 2022, rental returns on a three-bedroom house declined in three out of four counties – largely because home prices rose 15%.

RVINE, Calif. – A new Attom Data Solutions report finds that profits on three-bedroom rentals decreased between 2021 and 2022 in 72% of the 212 counties analyzed.

Most declines were modest – less than one percentage point over the past year – but three-quarters of the counties where median home prices exceeded $250,000 saw declines in rental yields. The report also found returns decreasing in counties where median home prices are below $250,000, but returns remain above 8% on average in those counties.

The declines in returns come as home prices rise along with rents, which increases the amount landlords must pay for rental properties. Median prices for three-bedroom houses increased at least 15% between 2021 and 2022 in half of the counties analyzed, but only one-third of markets saw rents increase that much, according to the report.

The largest returns on single-family rentals were seen in lower-priced counties, which also recorded fewer declines in profits. The affordable counties with the highest yields on average were Atlantic County, New Jersey (12.2% yields); Wayne County, Michigan (10.7%); and Jefferson County, Texas (10.1%).

The smallest returns were found in counties where median home prices were at least $500,000, including Santa Clara County, California (3.1%); San Mateo County, California (3.2%); Williamson County, Tennessee (3.9%); and Kings County (Brooklyn), New York (4%).

Of the 212 counties in the study, 27% saw wages growing faster, including Cook County, Illinois; Orange County, California; Kings County, New York; and Miami-Dade County, Florida.

Large cities like New York and Miami have seen rents increase to historic highs as the cities have emerged from the pandemic, but those markets may still be in a recovery phase, according to analysts.

Source: Inman (05/23/22) Verde, Ben

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