Scottsdale, AZ – $1,650/Month, 3 Bedroom Home
Glendale, AZ – $1,550/Month, 4 Bedroom Home
Marietta, GA – $1,400/Month, 4 Bedroom Home
White Plains, NY – $5,600/Month, 5 Bedroom Home
Hartsdale, NY – $4,800/Month, 3 Bedroom Home

Two months ago, after Terri Olson’s husband was offered a new job, the couple and their two children moved from Chicago to a suburban neighborhood in North Phoenix. But instead of buying a new home, the Olsons decided to rent.

The Olsons are part of a growing number of people renting single-family homes after the recession. In suburban areas around major cities like Phoenix, Atlanta and New York, a new rental housing market has emerged in recent years. Home rentals are now a part of neighborhoods that were once predominately areas of homeownership, shifting the concept of the American Dream. The high demand for single-family rentals is largely due to people being unable to purchase homes. The availability of homes for rent mainly stems from foreclosures and job relocations.

“So many people are renting,” said Merrill Kalman, a real estate agent with Prudential Arizona Properties in Scottsdale. “It’s pretty much all I’m dealing with.”

More than four million people have entered the rental market since homeownership began to decline in late 2006, said senior economist Jason Frederick at BBVA Compass. If the homeownership rate continues to decline, another million people may need to transition into the rental market, he said.

“People have been foreclosed out of their homes,” said Justin Pieragostini, salesperson with William Raveis Real Estate in Katonah, New York. “Their only alternative is to rent because they can’t get a mortgage.”

Tight credit is the primary reason people are living in rental properties, economists say. Banks are cautious to make loans, requiring 20% down payments and credit scores of 720 and above before lending to borrowers.

But bad credit is not the only reason people find themselves renting houses. There are a number of good reasons, real estate agents say, such as the peacefulness of the suburbs, upgrading to a bigger home to accommodate a growing family and changes in employment.

When relocating to a new area for work, renting a home becomes a good way to test out a new neighborhood before making a big investment in a house, Pieragostini said.

Relocation also creates rental inventory. When the Olsons moved from Chicago, they decided to rent out their home there, instead of selling it. Many other people relocating to new cities for work are making the same choice.

“They’re not willing to let their home sit on the market. Their hope is in a year or two the price will be more,” Pieragostini said.

Rental inventory also comes from investment companies that have bought up foreclosed homes and are now renting those properties out.

“Investors have been very active in the market over the past two years, attracted mostly by discounted foreclosures that could be quickly turned into profitable rentals,” chief economist Lawrence Yun said in a recent press release for National Association of Realtors®.

Urman Investments in Scottsdale, which owns 20-30 properties in the area according to office manager Justin Baugh, is renting houses in some cases to the same people who were being evicted due to foreclosure. “It’s the best of a bad situation many times,” he said.

In Scottsdale, a neighborhood northeast of Phoenix, rentals are going quickly due to high demand and low inventory. The same is true for areas around New York City and Atlanta.

The demand in rental properties is affecting prices, said Frederick and his colleague economist Kim Fraser at BBVA Compass, a consumer bank in the Sun Belt region.

The graph above shows shelter prices, which includes rent of primary residence and the owners’ equivalent rent of residences, have continued to rise in the last year.

“Rental prices have been on an upward climb,” Frederick said. “Wages aren’t rising as fast as rent so the total rent is going to consume a larger share of income.”

The increased number of people renting homes could be creating a new vision of the American Dream.

A recent study by Hart Research Associates, commissioned by The John D. and Catherine T. MacArthur Foundation, found that 61% of adults, both owners and renters, believe that “renters can be just as successful as owners at achieving the American Dream.”

In Scottsdale, where the weather is hot and a three-bedroom house can be rented for under $1,500, Kalman has ten clients all looking for a rental home with the same criteria.

“Rentals are hot out here and it’s not a pun,” Kalman said.

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