Rising Rents vs Home Price Appreciation: The Debate Heats Up


Across the country, especially in urban metropolitan areas, it’s becoming as difficult to find a rental property as it is to buy a home.

“It’s just going to keep happening,” said economist Roy Black of Emory University’s Goizueta Business School. “It is the perfect storm: Supply chain issues, inflation, gas prices going up. It is everything happening from different angles. The middle class, even the upper middle class, is being squeezed. Prices are squeezing the people whose salaries are not increasing at the pace of the cost of living. About the only thing people can do is bargain-hunt until they find something or move farther and farther out where the rents are cheaper.”

Elizbeth Rose with Mortgage 300 in Dallas, Texas agrees with Black that supply and demand is the force behind the current market. She says there aren’t many signs of prices leveling in the short term.

“Apartmentlist.com put out a recent report that shows rents are rising year over year (December 2020 to December 2021) at just over 17 percent, while home appreciation prices are just over 18 percent,” Rose said. “They are tracking pretty much together. Both can point to a lack of inventory and lack of availability. We have a lack of multiunit housing for people wanting to rent, just like we have a shortage of single-family houses for people wanting to buy.”

“The only good news I can give you is the only thing certain in the real estate market is it is going to change,” Black said. “Just ten years ago, you could buy a house in Clayton County, Georgia for $15,000. For $25,000, you could buy something really nice. Today, that is not even a down payment. The supply of houses will change. It’s going to take a few years to get caught up. Homebuilders will build as fast as they can, and it will change.”

The Fed says it will raise interest rates starting in March, but housing experts question whether that will have significant impacts on the housing market.

“Anytime you get even a quarter-point or half a point uptick in the [mortgage rate] market, you are squeezing out some people who are at the margin of being able to afford a house,” Black says. “When I bought my first house in 1976, we were paying 8.5 percent interest and we thought that was a bargain. By 1981, interest rates were up around 15 percent. We wanted to move but waited till interest rates were down to 11.5 percent before we bought again in 1985. So, the rise in interest rates is not as bad as the rise in housing costs.”

He says the Fed’s attempt to cool inflation by raising interest rates will not only have little effect on someone’s ability to buy, but will also seem a little scary to potential buyers because of the principle of “recency bias.”

Recency bias is a cognitive bias that favors recent events over historic ones. A memory bias, recency bias gives “greater importance to the most recent event”, such as the final lawyer’s closing argument a jury hears before being dismissed to deliberate.

“One estimate is the Fed will raise interest rates seven times in the next two years,” Black said. “That is still going to be historically low interest rates. It is just that people aren’t used to those interest rates. Usually, we are down around 2 percent or 3 percent. It will seem like an enormous amount, but historically it’s just not. I think we’d be better off with a glut of houses and high interest rates than with low interest rates and a tight market for housing.”

Renters are feeling the crunch, too.

“I’ve heard people who have been moving from one apartment complex to another or moving from out of state to our area that it is becoming more difficult to rent,” said Rose. “They are going and looking at apartments and putting in applications and finding those guidelines have become very tight. In some cases, tighter than a mortgage. There have been some cases if your credit shows a bankruptcy, that sometimes can be five or six years removed and they are just saying ‘No.’ Meanwhile, you can get a mortgage, in some cases, two years out from bankruptcy. Also, people are having to produce pay stubs, they have to qualify for their monthly payment versus percentage of income. So, you are having to qualify to pay rent.”

Rose adds the shortage in housing is also being fed by private investment firms that are tightening the squeeze even more.

“There’s a lot of major players out there that are buying up properties and are paying cash,” Rose said. “Those are not individuals. So, you have more and more corporations that are buying up homes, paying cash, and holding onto them. Personally, I feel like they are kind of stealing an opportunity out from under an individual. But they are turning those properties into rentals. So, are we going to become a country of renters? I certainly hope not, but the trend is there.”