Will Raleigh area rents go up, down, or stay the same in 2021?

Question

Does anyone in the trenches in the Raleigh / Research Triangle area of North Carolina have any impressions of how the market will fare through 2021?  Even if you don't make an outright prediction any insight on the residential & multifamily market is appreciated.

Chris Martin · Answer

If you look at HUD FMR (Fair Market Rent) data, the increases in 2021 are, for a two bedroom residential property in some local areas:

2.3%     Raleigh MSA

4.2%     Durham-Chapel Hill HUD Metro

12.6%    Greenville, NC  MSA

That doesn't mean a particular property would not rent for more or less. As applied by HUD methodology, those are the expected "Fair Market Rents" in these three HUD MSA or Metro areas. The HUD site (link at bottom) provides in depth detail about their FMR methodology. The data below, summarized onto one page, shows other property FMR values by location and by number of bedrooms.

Source: https://www.huduser.gov/portal/datasets/fmr/fmrs/FY2021_code/select_Geography.odn

Jiri B. · Answer

I would think either flat or slightly up maybe 0-4% over the next year. Rents are hard to measure as there is no centralize location with that data. Many small privately owned homes with no official rental history etc. Rents here don't move as much as the housing market and it takes longer for the trends to show.

But for comparison, the sales price for small residential properties is up around 9% over the last year. I don't think anyone has really expected that kind of return during this pandemic so I don't really think anyone really knows what it's going to be next year.

Overall housing market is very stable here and we don't see anything like that is going on in NYC for example with people moving out. And the demand is still high so i would not expect much negative numbers if any.

As for the commercial, i don't really know. Mainly focus on residential. But hope this helps.

Emily C. · Answer

Every multi I've shown in the last few months have had a line of agents waiting at the door to get in. Strong demand and multiple offers.

Will Kaufmann · Answer

I'm not sure 2021 is going to be the year we see an inflation in rates, but in the long-term view I don't see how the rents do not catch up to the price increases. While I cannot point to a specific data source, I believe the previous 3-5 year sale price increases have barely been kept up with via rent increases.

Eventually landlords should get a bit more aggressive with pushing rents up to justify capital allocation, and I am trying to do so myself. Anecdotally, we managed to rent a 3/2 in downtown for $2,200 that realistically I thought the fair rental value was around $2,000 or so, but we held strong on the ask. I also am aware of a 2/1 that's renting for $1,850 that arguably is only worth $1,700.  We are also under contract for a rental that I am willing to pay up for a 10% year-over-year premium because the rent should increase. Raleigh markets, like many others, are hyper regional in my opinion, so a 1 mile difference can take returns from the 1% rule to 0.5% very quickly.

I'm not sure if that all helps or further complicates things, but there is simply no easy answer to your question!

Chris Carrigan · Answer

Residential prices will continue to rise due to a severe shortage of inventory.  I would imagine the same will occur for rent as the shortage also affects the amount of available rental properties.  Currently more than 33% of listings are going for over list price and for homes under $250k that's probably closer to 75%.   This will continue in 2021 and most likely get worse (or better depending on if you are a buyer or seller) in the first 2 quarters.

John Yarenis · Answer

Will, do you see the rent volatility a little higher in the near future or do you see this as the new baseline?

Chris Carrigan · Answer

Suzanne, we certainly are getting a large influx from the NY and NJ.  If you are sending any buyers down this way, let me know.  I'd be glad to give you a referral fee.

Suzanne Player · Answer

@Jiri B. I wonder how much of this appreciation comes from the long term trend of people from New Jersey & New York relocating to cheaper & warmer parts of the country?  Covid may be a catalyst to a lot of these people who already had 1 foot out the door

Chris Carrigan · Answer

I know you are asking about rents, but with the current market the real money comes when you sell the rental after having someone else pay your mortgage.  These numbers are for 2019.  I'm sure 2020 numbers will be higher when they come out.  TARR will be starting to provide rental research in 2021 - so there will be good rental data in the future.

Suzanne Player · Answer

@Will Kaufmann"We do not have systemic risks like larger metro areas do at the moment, be it governance issues, company exodus, etc." - this is an excellent point, COVID is an important consideration right now but with any luck it won't be a long term issue.

Will Raleigh area rents go up, down, or stay the same in 2021?

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