Q2-Q4 2021 Rent Price Forecast: 0 percent to +5 percent
of the renter pool across the U.S. Additionally, many job sectors in the lower income range have a slower recovery trajectory ahead. WHERE DO RENTS GO FROM HERE? Kansas City Rental Rates Prediction 2020 Comparatively low rent vs income ratios along with rental increases in- line with wage growth should create a stable rental price environment. Some areas are less expensive to own than rent, which could reduce rental demand heading into peak summer/fall season. Risks stem from the large number of lower income jobs affected by the spiking unemployment, tenants may struggle to keep up with payments. Economic effects have increased demand for affordable housing, and there will be significant increase in demand for Section 8 subsidized rentals. High-end rentals will see a drop-in demand. Q3 2020 Rent Price Forecast: 0 per- cent to +3 percent Late fall and winter months are typically seasonal low points. If home prices dip during this time, more demand could be lost due to low interest rates providing opportunities for renters to convert to homeown - ers. Unemployment may remain high and put further downside pressure on rents. Increases in COVID-19 cases should not affect rental prices directly but could slow the economic recovery. Q4 2020 - Q1 2021 Rent Price Fore- cast: -5 percent to -0 percent The last five years have provided nearly five percent year-over-year rent price increases, yet the Kansas City market rent vs. income metrics show an affordable rental market with room for further increases. However, until employment and wages recover, rental rates will see limited appreciation.
Zip-code level three-bedroom SFR rents range between $850 to $1,700 across the metro. Rents in the Overland Park, Lenexa, and Olathe areas south of the city on the Kansas side have the highest cluster of rents in the metro between $1,500 and $1,700. West Kansas City, KS rents along I-70 range between $1,000 and $1,200, and on the Missouri side gradually increase from least expensive metro values of $850 near downtown up to $1,250 further to the east. North of the city in Platte City, Smithville, and Kearny are more uniform between $1,350 and $1,500. Blue Springs and Lee’s Summit south of the city have a similar range between $1,350 and $1,550. Kansas City ranks 31st in the U.S. for five-year SFR rental price increases with a 24.4 percent gain. More expensive areas have seen moderate appreciation of 10 percent to 20 percent, while less expensive areas show larger increases up to 20 percent to 30 percent. The overall rent-to-income ratio of the Kansas City MSA is the 8th most affordable rental market, coming in at 23.5 percent and significantly below the national average of over 32 percent. Rent-to-income ratios nearest to the city are between 35 percent and 45 percent, as these areas have a larger segment of low- wage earners. Rural/suburban areas to the northeast and southwest have seen sharper increases in rent and show higher rent to income ratios between 20 percent and 30 percent. The rest of the metro in suburban areas circling Kansas City have very low rent to income ratios between 10 percent and 20 percent. On May 14, the Federal Reserve reported that nearly 40 percent of workers in households earning under $40,000 had lost their jobs by early April. These numbers will bounce back as economies restart; however, this is a very large cohort
CONCLUSIONS Our forecast for the near and long term is that Kansas City is still a good market for investment, even with the challenges of COVID-19. While it doesn’t promise any huge gains in appreciation, it is a steady, performing market that provides in - vestors with a balanced opportunity for equity appreciation supported by rental cashflow with a low downside risk. Yields are also at a compara- tively high rate of 7 to 12 percent with solid pre- COVID-19 year-to-year increases in population, jobs, and wages. Home buyers seeking affordability and space are driving interest in the suburbs. It’s still very affordable with a median price of just over $200,000 per home and has held a strong home price appreciation in the past five years. It’s also benefited from a steady increase in wage and em - ployment growth, so the market is not overheated. The rental market is strong with below average rent-to- income ratios. Rental prices should remain near current levels, which provides investors with abundant cash flow opportunities. Be aware that home sales are constrained by low inventory and diminished seller and buyer con- fidence as the effects of COVID-19 linger in the labor market. Also, rental and home prices will flatten or marginally decrease if the economic downturn continues in the next one to two years. It is recommended that investors conduct due diligence research on specific neighborhoods for crime rates.
Fred Heigold III is the senior data analyst at Altisource® / RentRange®, an industry leader in market data and analytics for the single-family rental housing industry.
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