Housing frenzy makes snagging a rental home even harder
All-cash offers. Bidding wars. Applications submitted sight unseen within hours of a listing going up.
The signs of this year’s hot housing market may sound all too familiar. But prospective homeowners aren’t the only ones fighting for homes. Those looking to rent a single-family house are expressing astonishment at just how frenzied the market has gotten.
“It’s like buying toilet paper in the middle of March last year,” said Hai Doan, describing his recent struggle to find a single-family home to rent in Katy. After losing out on a house that received 40 rental applications, Doan decided he had to take steps to make his application stand out. He offered $150 a month above the advertised rate, as well as nine months’ rent in cash up front. “What’s a word for ‘beyond crazy’?”
The forces driving the home sales market are rippling over into home rentals. The same demographic and pandemic shifts that made for-sale homes scarce are contributing to a lack of rental homes: A flood of family-ready millennials. The desire for more space and less density. The migration of newly remote workers to lower-cost markets like Houston.
On top of that, people who otherwise would’ve bought have been pushed into the rental market by rabid competition and the inflation of sales prices.
Some, like Doan, think home values are too high and are sitting things out until the market rebalances. Others, like Michica Guillory, are looking to avoid the hassle involved with buying in a cutthroat market. (“I decided not to go through the headache, not to buy,” said Guillory, who as a real estate broker knew how ferocious the sales market had become. “And then I still went
through the headache.”) And others have found it difficult to find homes that meet both their criteria and their budgets as home prices rapidly spiral.
As housing costs spill into the rental sector, many will soon feel the impacts on their wallets even if they choose to stay renters. In April — six months after median home sales prices in the Houston area began shooting up by double-digit percentages from the year before — median home rental prices also began rising by 10 percent to 12 percent, up from an average 2.3 percent year over year in 2020. By June, the average house began renting for more than advertised, according to Houston Association of Realtors data. Rental homes were flying off the market in an average 17 days, whereas before the pandemic, it usually took roughly 40.
“It’s almost like Houstonians can’t afford Houston anymore,” said Nimesh Patel, a real estate broker who also runs a property management company. He’s seen clients lose out on home bids to out-of-state buyers with deep bank accounts, and he’s seen single-family rentals go for hundreds of dollars above the asked-for monthly rent. The rent for a median single-family home in Houston was $1,925 in July, according to the Houston Association of Realtors, compared to $1,700 a year ago. “The locals can’t afford it as prices keep jumping and jumping.”
These days, when Julie Yau Tam, the managing broker at Lyn Realty, lists a recently built singlefamily home, she expects a flood of showings.
The first applications come within hours. “They haven’t even seen the property,” she said. “They just want to be ready.”
Within the first few days, she commonly receives more than a dozen offers. Her company weeds out the ones with bad credit or poor reviews from previous landlords. Then it reaches back to the remaining applications and asks for their highestand-best offers.
Some offer a few hundred a month extra. Others offer to prepay rent upfront, or to move in early even if it means temporarily covering two leases.
“We’re actually getting people who have flawless credit, no criminal history, flawless rental history … literally perfect on paper … and to get the house, they’re willing to pay more,” she said.
Patel’s team of real estate agents has found that prospective renters who are less-than-perfect on paper need to be even more proactive about sweetening the deal. For example, he knows some landlords will not look at renters with a credit score of less than 650. “But if you give them three months up front, $100 extra a month, then they may consider.”
The upward pressure on rental prices means that typical Houston-area renters will spend a greater share of their incomes on rent in the coming months, according to a Zillow forecast. The real estate company predicts the typical Houston-area renter will spend 29 percent of their income on housing this December, up from 28.3 percent the December before. Zillow research has shown that homelessness rises more quickly in communities where people spend more than 32 percent of their income on rent.
Competition is hottest for newer homes located in good school districts, Tam said. Older homes in need of renovation, she explained, have largely ducked the frenzy.
As demand for single-family home rentals surge, so has the desire of developers and investors to meet that need.
“We’re getting tons of (investor) money that wants to invest in Texas that had never looked at Texas before,” said Jacob Sudhoff, whose real estate company, Douglas Elliman Texas, specializes in luxury homes. Sudhoff said inflation fears are driving investors to put money into homes that can produce dependable cash flow while appreciating in value. Texas, where the relatively affordable cost of living and lack of state income taxes has drawn people from higher-cost regions, has also been attracting investors, Sudhoff said.
“It’s like the California gold rush,” he said. “We’ve never seen a flight of capital into Texas like this.”
Builders, on the other hand, are responding to investor demand. The major homebuilder LGI Homes projects that between 10 percent and 15 percent of the homes it builds this year will be sold to investors. And Wan Bridge, which specializes in build-to-rent communities, has been aggressively ramping up its pipeline of rental homes by going on a landbuying spree beginning in November 2020. The company plans to start between 20 and 30 new build-to-rent communities in the Houston, Dallas and Austin suburbs within the next four to 12 months.
Ting Qiao, the chief executive of Wan Bridge, said limits on new housing supply coupled with the surging delta variant, which has caused many to mentally brace themselves to continue working from home, means sales prices and rents will keep feeling the squeeze. In the next quarter, he expects to see only more demand for single-family homes.
“Whether it’s work from home or school at home,” he said, “people just need extra space.”
“It’s like buying toilet paper in the middle of March last year.”
Hai Doan, on finding a single-family home to rent in Katy