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Rents haven’t fluctuated much over the past year, rising 1% in January–a far cry from double-digit growth during the pandemic.

The median U.S. asking rent rose 1.1% year over year to $1,964 in January, the largest annual increase since March 2023, and was unchanged from a month earlier, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. While rents ticked up from a year earlier, the bigger picture is that rent growth is leveling off after surging during the pandemic and then rapidly slowing from mid-2022 to mid-2023.

Year-over-year rent growth has hovered between -2.1% and +2.4% for the past year, a much narrower range than the prior year, when rent growth was as low as 4.8% and as high as 17.7%.

Asking rents have flattened because the pandemic moving frenzy is over and landlords are grappling with vacancies due to a jump in apartment supply. The rental vacancy rate was 6.6% in the fourth quarter, tied with the prior quarter for the highest level since early 2021. Vacancies have climbed due to a building boom in recent years. The number of recently completed apartments is near its highest level in more than 30 years, and the number under construction is just shy of its record high. Redfin Chief Economist Daryl Fairweather expects apartment completions to peak in 2024.

While rents have cooled, they haven’t yet posted significant declines. That’s likely because high mortgage rates continue to fuel rental demand, and because some landlords are offering one-time concessions like a free month’s rent or reduced parking costs to attract renters without having to lower asking rents on paper.

Home prices are rising much faster than rents, which is also fueling rental demand and motivating renters to stay put instead of entering the housing market.

“There’s not a huge incentive for renters to buy right now. Asking rents are stable, and while mortgage rates have dipped in recent months, they haven’t fallen enough to make the financial equation of homebuying feasible for many people,” Fairweather said. “If you’re a renter who’s interested in buying but isn’t in a rush, there’s not much downside to waiting for mortgage rates to fall and your savings to grow.”

Buying may make sense for people who can afford a large down payment and plan to stay put for at least five years, Fairweather said. Putting 20% down helps offset the cost of elevated mortgage rates and removes the cost of private mortgage insurance, and some may prefer to buy now before competition inevitably heats up when mortgage rates fall further. Of course, many Americans can’t afford a 20% down payment, though some do qualify for down payment assistance.

Rents Climb Fastest in the Midwest and Northeast

The median asking rent in the Midwest increased 4.6% year over year to a record $1,437 in January. Rents also rose in the Northeast (2.3% to $2,427) and the West (0.6% to $2,358). In the South, rents were unchanged at $1,637. The Midwest was the only region where rents hit a record high.

“Rent prices in Chicago are still out of control,” said local Redfin Premier real estate agent Dan Close. “A lot of the buyers I’m working with are people who have been pressured out of renting–if you’re paying an arm and a leg for rent, why not try to buy and build some equity? We’ll likely see this trend intensify in the spring and summer, when the vast majority of leases end.”

Rents are likely holding up best in the Midwest and Northeast because those regions haven’t been building as much as the South and West, meaning landlords aren’t under as much pressure to fill openings.

To view the full report, including charts and methodology, please visit:
https://www.redfin.com/news/redfin-rental-report-january-2024

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FHLBank San Francisco Member Financial Institutions Can Now Originate More Loans for Underserved Borrowers to Close the Racial Homeownership Gap

The Federal Home Loan Bank of San Francisco (FHLBank San Francisco) and VantageScore announced today that FHLBank San Francisco will now accept mortgage collateral originated by lenders using VantageScore 4.0 credit scores, which considers rental payments and other data points into its scoring algorithms that are not included in traditional scoring models, ushering in an innovative solution aimed at closing the racial homeownership gap. By expanding the kind of mortgage collateral eligible to be pledged by member financial institutions borrowing from FHLBank San Francisco, lenders will be able to increase the amount of creditworthy mortgage applicants and include many underserved borrowers left out by conventional models. VantageScore estimates that using the VantageScore 4.0 credit model will result in approximately 33 million more consumers nationwide having access to a credit score that may aid them in obtaining a mortgage; including an estimated 5.5 million consumers within the FHLBank’s regional footprint of Arizona, California, and Nevada.

“We know there are millions of creditworthy borrowers aspiring to be homeowners who are falling through the cracks,” said Teresa Bryce Bazemore, President and CEO of the Bank of San Francisco. “Expanding the pool of creditworthy applicants through the use of more inclusive and innovative predictive models, such as VantageScore 4.0, effectively helps us deliver the American Dream of homeownership to more applicants and further narrow the racial wealth gap. Over the last few years, we have dedicated significant resources and commitment to investing in expanding Black homeownership and we are excited to be the first mover among our peers and bring the program to life.”

In October 2022, the Federal Housing Finance Agency announced its approval of VantageScore 4.0 for Fannie Mae and Freddie Mac, enabling widespread industry adoption of the new credit scoring method and opening the door to millions more qualified applicants by incorporating rental payments and other data points into scoring algorithms not included in traditional scoring models, all without lowering credit risk standards.

Notably, FHLBank San Francisco is the first in the Federal Home Loan Bank System to accept collateral that uses VantageScore’s predictive and inclusive credit scoring model. This decision is the latest step that FHLBank San Francisco has taken over the last four years to advance racial equity in homeownership and wealth building:

  • In June 2020, FHLBank San Francisco announced it would redouble its commitment to making homeownership possible for more Black households.
  • In October 2021, FHLBank San Francisco launched the Racial Equity Accelerator, a two-year research and product advancement initiative with the Urban Institute to identify ways to close the racial homeownership gap.
  • As part of that initiative, in October 2022, the Urban Institute issued an analysis, “Reducing the Black-White Homeownership Gap through Underwriting Innovations,” that detailed ways to use alternative data to expand the pool of eligible homebuyers and recognized the impact of VantageScore 4.0. 
  • In October 2023, FHLBank San Francisco published “Closing The Racial Equity Gap: A Call To Action,” which includes a package of recommendations for updating the housing ecosystem to close the racial homeownership and wealth gaps. In that report, FHLBank San Francisco highlighted the VantageScore 4.0 model as being more inclusive and particularly effective in communities currently excluded from the mortgage marketplace.
  • Following the report, FHLBank San Francisco began a validation process that was completed at the end of 2023, validating the VantageScore 4.0 model as acceptable for residential mortgage loans pledged to secure credit from FHLBank San Francisco.

“The decision by the Federal Home Loan Bank of San Francisco to accept mortgage collateral backed by VantageScore will have a significant impact on boosting homeownership rates among creditworthy but traditionally underserved communities, while increasing safety and soundness,” said Anthony Hutchinson, SVP of Government and Industry Relations, VantageScore. “Addressing the persistent disparities that exist in mortgage lending is an important precursor to reducing the homeownership gap in communities of color, which is a priority that both VantageScore and Federal Home Loan Bank of San Francisco share.”

“We believe in driving financial inclusion and creating more equitable access to credit in the communities we serve,” said Richard Wada, Chief Lending Officer at Patelco Credit Union, headquartered in Dublin, California. “We've been using VantageScore 4.0 for our auto loans and credit cards and that's provided us with a new pathway to provide fair and accurate credit scores to a broader population, creating opportunities for us to lend credit safely and soundly to consumers historically left behind. We look forward to leveraging VantageScore 4.0 for mortgage lending in the future.” 

Posted On Monday, 12 February 2024 08:39 Written by
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