Seattle is known for its hip neighborhoods, soaring home prices, and being home to Amazon.com Inc., the world’s most valuable company. So why is its rental housing market experiencing the most severe slowdown in the U.S.?
Seattle Leads U.S. Rental Slowdown - Fort Worth-Dallas Rental Rates Flat July 2018 YoY % Chng
For the first time since 2010, it’s now easier to build wealth over an eight-year period by renting a home and investing in stocks and bonds, rather than by buying and accumulating equity, according to a national rent-versus-buy index of 23 cities produced by Florida Atlantic University and Florida International University faculty. That’s because home prices are high and rising mortgage rates are adding to the cost of homeownership.
That could be bad for sellers, especially in markets like Dallas and Denver, where renting is now so much more favorable than buying, according to Ken Johnson, a real estate economist at Florida Atlantic University, a co-creator of the Beracha, Hardin & Johnson Buy vs. Rent Index.
Reminiscent of the Bubble
Already, housing markets in strong economies are cooling, in part because incomes haven’t kept pace with rising prices and borrowing costs. Dallas and Denver have reached so far into favorable rental territory that they look like Miami right before it crashed in the last decade, Johnson said.
The difference now is that neither market is experiencing the kind of speculation and risky lending that inflated the last housing bubble, he said.
"What’s interesting is that cities that suffered the least in 2007 and 2008 -- Dallas and Denver -- now are experiencing the most exposure to risk," Johnson said.
The slowdown in the rental market coincides with a rise in homeownership among millennials, which jumped to 36.5 percent in the second quarter from 35.3 percent a year earlier.
"It’s both supply and demand," Terrazas said. "There has been a lot of construction and investment in rental. But there is also softer demand."