While the fast-moving and extremely tight home sale and purchase market have been getting most of the attention, rental market trends are commanding more attention. The U.S. rental market—a $174 billion industry—has also been heating up: high home prices, rising mortgage rates, increasing home construction costs and delays due to supply chain issues, labor shortages, and low inventory are increasing demand for rental properties.
Surging demand and rising costs have given landlords pricing power. Rents have increased dramatically in much of the U.S. over the past year, with the median national average surpassing $2,000 in May. These cities have experienced the largest year-over-year price increases for one-bedroom rentals:
Austin, TX (+108.2 percent)
Jersey City, NJ (+51.6 percent)
Tempe, AZ (+49.3 percent)
New York, NY (+41.0 percent)
Salt Lake City, UT (+40.5 percent)
Long Beach, CA (+39.6 percent)
Fremont, CA (+38.2 percent)
Richmond, VA (+35.7 percent)
Tacoma, WA (+32.8 percent)
Portland, OR (+32.2 percent)
In addition, more renters are staying put, limiting supply and putting pressure on prices. Many renters who were considering purchasing a home are staying on the sidelines. Many will simply extend their current lease rather than rent in a new location. Others who initially intended to rent only for the short term might find themselves renting indefinitely. Current rental vacancy rates are just below 97.5 percent, and this rate is not expected to drop over the peak summer months.
Some other rental market trends to note:
- Older and more financially stable individuals can be more appealing to landlords, and younger potential renters might find their rental applications falling to the bottom of the pile.
- The bidding wars that we’ve seen recently in the home buying market have now made their way to the rental market in some areas, according to The Wall Street Journal. This is being seen mostly in large metro areas such as Chicago and New York and with high-earning professionals who may be hesitant to purchase in this market.
- Automated tenant screening services have become a formidable hurdle to overcome for anyone who has gone through an eviction process. Names are the only identifier needed in many cases, and this can create serious issues across the board, particularly in the low-income housing market.
- Many landlords whose tenants were protected by the federal CARES Act or other state-run renter protection programs during the pandemic are now trying to recoup lost income and are raising rents accordingly.