Noelle listed her house on a Thursday last August and accepted one of several offers above her asking price the following Tuesday. The 36-year-old auction house employee wanted to capitalize on the red-hot real estate market to sell her family’s home of 10 years in order to make enough money to buy her dream house. She’d planned on living in a nearby Long Island rental for six months to wait for prices to calm down and better options to come on the market. Now, Noelle thinks it could take two years, and she’s even considering buying a fixer-upper to give her family options.

“This is going to be a different summer than we expected,” Noelle told Recode. Her old house had a pool and a big backyard. Her rental has a small backyard, no pool, and is not as big as the four-bedroom colonial she had.

Noelle, who requested that we not use her last name, is one of the millions of Americans contending with the double-edged sword of a booming housing market. The sellers’ market is making those who already own homes even wealthier, while high prices push homeownership further out of reach for many Americans. In turn, the housing boom is creating a new population of home renters: people who in years past would have been able to afford a home but are now getting priced out.

While some people prefer renting a home to buying one, the home rental trend can’t be divorced from the high price of homes, which is forcing many people to rent what they can’t buy. Home prices are astronomically high, but houses are nonetheless being plucked off the market faster than ever. In March, the median single-family home in the US sold for a record $335,000 and typically spent just 18 days on the market (it took twice as long in the already hot market in March 2019, when the median price was $261,500), according to the National Association of Realtors.

Most recently, the pandemic and the premium that it put on private indoor and outdoor space has driven demand and prices. But like many things, this was an existing trend that the pandemic merely accelerated, and it has its roots in a confluence of factors, from an aging millennial population to an influx of private equity.

What’s driving up prices on houses

Some 5.6 million single-family homes sold last year — more than at any time since the housing bubble — and the prices of those homes were up 9 percent from a year before, according to the National Association of Realtors. The organization expects average housing prices to go up another 9 percent this year — another huge jump from the typical 3-5 percent annual price growth and far above the rates at which people’s income is rising.

Though not the root cause, the pandemic did accelerate those costs, as schooling and working from home made having a nice, large living space all the more important.

“It has reminded us all of the importance of home and how essential it is to have a safe space of shelter from the outside world,” Zillow Group principal economist Chris Glynn told Recode.

The pandemic also allowed subsets of Americans who remained employed — usually those who were more gainfully employed in the first place — to save money for a downpayment, as there was less for them to spend their money on.

“It’s like everybody got locked in their house and got forced to save, which is a home-builder’s dream,” John Burns, CEO of his eponymous John Burns Real Estate Consulting, told Recode.

Coupled with historically low mortgage interest rates, this past year has encouraged many Americans to try their luck buying a house.

The reasons are demographic as well. Millennials, who make up the largest living cohort, have arrived at the age where they’re forming new households and buying their first and even second homes (though that milestone happened later than in previous generations). And as millennials with growing families flock to the housing market, the supply of homes has not been enough to keep up.

Many people, including older Americans who don’t move as much as young ones or who were afraid to let people visit their homes in the pandemic, are holding onto their homes longer, meaning many existing homes — which make up the vast majority of home sales — have not been entering the market.

Additionally, new home construction, though it has ramped up lately, has been depressed since the Great Recession devastated the construction industry. High lumber prices are also delaying and driving up the cost of new housing.

Finally, investor interest in renting out single-family homes as an asset class has led them to buy up much of the housing stock that individuals once would have. Buying homes to rent means there are fewer to buy to live in, which, by extension, has led more potential buyers to rent.

Investors — which include everyone from individuals looking to earn extra income to pension funds to foreign governments — are competing with individuals to buy houses. And it can be more attractive (and quicker and safer from a financial standpoint) to sell a whole development to investors in a single-family rental company than to a series of individuals.

“Now they’re selling a lot of these homes in bulk for rentals because institutional money is coming into play,” Ivan Kaufman, founder and CEO of Arbor Realty Trust, which finances commercial real estate, said. “So it’s exacerbated the lack of supply of homes for sale.”

The rise of single-family rentals

During the Great Recession, when the housing bubble popped and when millions of Americans foreclosed on their homes, investors swooped in to buy those homes at a discount. The low prices made it feasible for big business to enter a market controlled by mom-and-pops, usually individuals who owned and maintained a single or a few rental properties as an extra income source. New technologies also made it easier to price and buy properties around the country, rather than relying on local experts, as well as to lease out and even maintain properties.

Individuals still dominate as single-family rental landlords, but companies and corporations are taking a bigger share of the pie. In 2018, the last available year for this data from the US census, companies and partnerships made up about 16 percent of single-family rental ownership while real estate corporations and real estate investment trusts controlled a growing 2.3 percent. Now about 20 percent of all home-buying activity is from investors, according to Burns, who thinks that number is going up. Many of these investors will rent out those properties, rather than live in them themselves. And a growing 4.5 percent of new home construction is being purpose-built for rentals, more than double the historical average, according to Arbor Realty Trust.

Institutional ownership of these rentals can be a good or bad thing for renters, depending on how you look at it. Corporate ownership means you can probably contact someone about repairs day or night and don’t have to worry about your landlord being on vacation. But it also means that rents are bound to go up with the market (whereas a mom-and-pops might leave rents alone for good tenants).

Regardless, single-family rentals are becoming an increasingly important way to house the aging millennial population.

“Think of the sheer size of this population,” Selma Hepp, deputy chief economist at CoreLogic, a property analytics firm, said. “More of them are buying and more of them are looking to rent.”

But renters are outpacing buyers. The number of renter-occupied households has grown 29 percent since 2000, according to John Burns Real Estate Consulting estimates using Census data, while the number of owner-occupied households grew just 17 percent. Kaufman from Arbor said that more than half of those renters are leasing houses rather than apartments — a longstanding trend that’s expected to grow post-pandemic. About 60 percent of new single-family renters are coming from cities, driven by the same trends boosting the home-buying market.

Stock in single-family rental companies like Invitation Homes and American Homes 4 Rent are at all-time highs. Occupancy rates for single-family rentals are at a generational high of more than 95 percent.

Single-family rentals are fitting the desire to live in a house without the cost of actually buying it.

“You have a supply-and-demand imbalance, and the rental market is an option for people who can’t afford to buy homes,” Kaufman said.

Monthly housing costs are much lower for single-family rentals compared with single-family home purchases, according to Harvard’s Joint Center for Housing Studies, and the typical income of families living in those rentals is more modest as well. And while rental prices are growing, they’re going up nowhere near as fast as home-buying prices. Home prices in February were up 17 percent compared to a year earlier, while single-family rent was up less than 4 percent, according to data from CoreLogic.

Of course, with the higher housing costs of purchased homes also come the equity of those homes that people can sell later — an important way to build wealth. The rise of single-family rentals is one of many trends portending the erosion of personal ownership. Thanks in part to digitization, people are renting rather than owning everything from music to farm equipment, ultimately giving them less control over what happens with that stuff.

What this all means for the future of housing

The breakneck pace of home price growth is going to continue until there’s enough supply to meet demand, which Lawrence Yun, National Association of Realtors’ chief economist, doesn’t expect to happen until sometime next year.

“Next year at least the multiple offers will go away,” Yun said, referring to the situation of receiving numerous offers above the asking price. “But I think the prices will be higher next year, so it’s a trade-off.”

The thing is, with the notable exception of the Great Recession which was caused by a housing bubble, housing prices generally tend to go up. And this housing boom is much different from the last one in its fundamentals: People are putting more money down and their credit ratings are high, so the likelihood of a crash is low.

Remember, in the pandemic, the US has also been in a recession while these housing prices have skyrocketed. So even if that growth slows to a normal level in the low single digits, it will have still jumped 20 percent in the past two years alone, further putting homeownership out of reach for many Americans whose incomes haven’t grown in lockstep. If people who have just sold their home and who have excellent credit are having trouble, that’s bad news for the rest of America.

“As homes become prohibitively expensive, more and more people fall out of the race of home buying,” CoreLogic’s Hepp said. Fewer people in the market for homes, in turn, would cause prices to slow down, she said, but it could be too late for many.

Under all this pressure, homeownership, which is currently at a respectable high 65.6 percent, could begin to fall. It’s already down from about 68 percent last year, though during the pandemic there were some issues with census data collection, which means the true rate is unclear.

What is more clear is what a lack of homeownership could mean for Americans.

“It’s creating a greater divide between the haves and have-nots,” Yun said. “Homeowners are getting sizable wealth gain. Renters are getting left out.”

It could also make the existing low homeownership rates for Black Americans worse. Yun urged for more housing development to help alleviate the problem.

One potential release valve in all this is the potential for American office workers, at least, to work from anywhere. That’s causing many Americans to try and buy homes in areas like the South and Southwest where the costs aren’t so high and where their paychecks from remote work can go further.

Untethering people from their offices could lead to a “great reshuffling” of where people decide to live, Zillow’s Glynn said, “with an eye toward locations that they may not have ever considered before.” He’s seeing lots of interest in places in the Sun Belt, like Austin and Charlotte. Of course, just because people can work from home, doesn’t mean their bosses will let them do so forever.

For those hoping to stay where they are and buy a new home, Yun suggests they “maneuver carefully” and include things like a contingency clause that the sale will only go through if they’re able to get another house.

And if that doesn’t work, they can always rent.

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