The suburban rent boom of the COVID years may be over, analyst says
Rent growth, which peaked during the height of the COVID pandemic, is beginning to recede across the US as economic conditions worsen for renters, a senior researcher at Apartment List has said.
Rob Warnock (pictured), one of the authors of a recent report exploring the reasons behind the COVID-led suburban rent boom, said demand for rental homes was now beginning to drop, reflecting a similar pattern in home sales.
“The ‘for sale’ and rental markets tend to follow pretty closely. We had really high levels of demand for housing across all sectors for the last two years (because) money was loose and interest rates were really low, but right now, we’re seeing demand for housing of all kinds receding,” he said. “In addition to a depressed housing demand we’re going to continue seeing rent declines across the board.”
The report, which tracked the price of rental properties from March 2020 onwards across 39 large and medium-sized metropolitan areas, showed that rents in the suburbs spiked by as much as 27.2% during the last two years, outstripping rent increases in the core cities, where they rose at a much slower rate (19.8%).
Read more: Mortgage companies announce layoffs amid housing market fallout
Renters roughly make up 36% of households (just over 44 million people), according to the US Census Bureau.
Explaining the reasons for the shift, Warnock said the suburbs enjoyed a competitive advantage during this period, as properties in these areas offer more space and remote working practices made it possible for renters to relocate.
The report found that even before the pandemic, “increasingly unaffordable housing costs close to the urban core had been pushing more and more renters” to the suburbs of large metro areas, resulting in a proliferation of what it called “super commuters”.
However, the trend has now started to reverse due to worsening economic data and the fact that the rental market is limited in the suburbs and has been unable to keep up with demand.
“Suburbs are, with some exception, typically not places where the rental market can grow nearly as quickly,” Warnock added.
The report noted that conditions quickly changed last year as the large cities where rents had been falling experienced sharp rebounds, leading to a temporary narrowing of the rent growth gap between core cities and suburbs early in 2021.
But suburban rent growth then began to outpace core city rent growth again, even as prices skyrocketed in both sets of cities, the report revealed, driven by tight supply colliding with a surge in demand.
The study said rent growth had now “cooled somewhat”, while the gap between core cities and suburbs has continued to gradually widen.
Speaking to Mortgage Professional America (MPA) about the latest trend since the report came out, Warnock said the rental market had now returned to a more normal pattern.
“Prices increased pretty much across the board up until about a few months ago when things started to slow down with some of the more federal interventions with rate increases,” he commented.
Read more: Triple blow for renters
“September was the first month of the year where we saw rent prices drop in our index, which is consistent with the typical seasonality that we were used to seeing in the market back before the pandemic,” he said, adding that in line with seasonal expectations they would continue to drop over the coming months before rising again to between 3% and 5% in the spring.
However, buying would not be an option for many.
“There’s definitely a much lower demand for buying homes and the share of houses that are seeing price decreases is way up.
“But all that’s counteracted against the fact that mortgage rates are much higher. You might have a home that’s listed for $100,000 less, but because of interest rate increases the monthly repayments make it just as expensive,” he said.
“So while it is slowing down the housing market, it’s not suddenly making homeownership affordable in the short term, so I think we still have a good amount of heat on the rental market. But even though people are still being priced out of buying a home I don’t think that necessarily means that the rental market skyrockets because even renters are less likely to be moving or signing new leases.”
