September 07, 2021
One of the defining features of the surging U.S. housing market during the coronavirus pandemic has been the commonality of bidding wars for homes. The trend has contributed to the staggering rate of home price increases across the country, where the nationwide median single-family existing-home sales price climbed a record 22.9% during the second quarter of 2021 compared to a year ago.
But while the market dynamics of home sales have gotten most of the attention from analysts weighing the effects of high demand, low supply and low interest rates, there has been another interesting pattern emerging in many rental markets across the U.S.
Increasingly, landlords have seen stiff competition and even bidding wars for rental properties, according to CNBC.
“As the economy improves, workers are moving out of shared living situations and looking for their own homes. In addition, the housing market is so expensive right now that many would-be buyers are being priced out. That has them looking for rentals.”
“Some landlords are seeing more than a dozen applications for good properties – and renters offering well above the asking rent.”
Attempts to understand some of the downstream effects of the pandemic have been overlooked at times, and in the case of rental properties, that’s been doubly true because rents were falling during much of 2020, especially in big cities. Work-from-home policies pushed many people out of expensive rental markets, causing an unusually high number of vacancies that required price drops, and many people who lost their jobs also moved into more financially manageable situations. Students living in apartments around college campuses also may have been motivated to let leases lapse while completing coursework virtually.
A new set of factors is now pushing rent prices back up. Nationally, rents rose 7% year-over-year in July for one-bedroom apartments and 8.7% for two-bedroom apartments. In June, those year-over-year gains were 5% and 6.5%, according to Zumper.
Since some renters are looking for apartments after pausing their search to buy a home, rental applications are coming in with higher credit scores and a willingness to put down more money for a security deposit.
The difference has been stark in some cities. In San Francisco, there was a 79% increase prospective renters in 2021 compared to 2020, while Seattle saw a 55% jump in prospective renters. Other cities saw more modest increases in applications. Boston only recorded a 5% increase and Portland saw an increase of 9%, according to data from Rentcafe.
One rental category that has seen significant rent growth has been single-family homes, a logical consequence of families searching for a place to create a more homely atmosphere in a home-buying market that may have proven too steep and competitive to navigate. The median rent for standalone single-family homes in April of this year rose 7.9% compared to 2020, according to data in CoreLogic’s Single-Family Rent Index.
Another possible factor in rising rent prices has been a secondary effect of the national eviction moratorium, which has prevented landlords from taking back properties where tenants have been unable to pay. To compensate for this, landlords may look to raise rents in the properties that they do have available for prospective tenants.
Rental markets are often an outlet for the pressures at play in the housing market, providing a secondary option for those waiting to buy at the right time and offering an affordable way to live for those who are unable or aren’t interested in buying. If the activity of the housing market puts upward pressure on rents, it’s a development worth monitoring.
For now, this may be more of a correction to the fall in rents during the first year of the pandemic, combined with seasonal trends usually seen in rental markets during the summer months and into the fall.