RRental prices have risen dramatically since the pandemic began, and tenants hoping for relief are unlikely to see good news on the horizon.
According to red fin, average monthly U.S. listed rents rose 14.1% year-over-year to $1,877 in December. The massive increase comes as the country grapples with inflated prices across most sectors of the economy. Some cities and regions across the country are seeing even steeper increases, with prices soaring more than 30% since the same time last year.
With the Federal Reserve aiming to rein in inflation by raising interest rates for the first time in years, rental prices are expected to face further upward pressure this year as mortgage rates for owners increase.
“Growth in mortgage payments has been driven by both rising prices and rising mortgage rates,” said Redfin chief economist Daryl Fairweather. “And those rising mortgage costs are driving more potential buyers to rent, driving up demand and prices for rentals.”
Brian Carberry, Senior Editor of Rent.comsay it Washington Examiner that rental price dynamics have changed due to the pandemic and changes in the way people work.
For example, at the start of the pandemic, rental prices fell sharply in major cities (especially in high-end apartments) as employees enjoying the newfound freedom of remote working migrated to other regions. from the country. Cities have recently seen many people return as offices reopen, but the dynamic has changed as more companies continue to offer remote or hybrid working models.
Carberry said “Location has become less important to many professionals because they don’t commute to the office as much, if at all. It provides the freedom to live virtually anywhere, so you see secondary towns or satellites are gaining popularity,” he said. “It creates more demand and competition in those cities, which will drive up rental prices, especially if there is more demand than supply.”
Many of these cities are located in places with a favorable climate, such as Texas and Florida. Cities like Miami have seen a boom in popularity with renters since the pandemic, and that demand, coupled with rising rental prices across the country, has driven prices up in South Florida, which has been inundated of people seeking sunshine and lower taxes. (Florida has no income tax).
Manuel Yllesca is the co-founder of Miami real estate, a Florida-based real estate company staffed by a dozen agents. It has been around for two decades. Yllesca’s business, which deals in the rental of luxury and conventional real estate, is booming, but he said rental prices have also skyrocketed – up to 30% compared to years past. .
He told the Washington Examiner that the same one-bedroom apartments in Miami that cost $1,500 a month a few years ago are now clawed back for a monthly rate of $2,400.
Yllesca said he takes phone calls in his office for at least an hour a day, and lately he’s been meeting a lot of people with tight budgets, especially those who already live in Miami. He said customers are primarily grouped into two categories: locals trying to get around the area and those out of state, primarily California and New York.
Yllesca said residents tend to have tighter budgets and have tried to downsize or move to less popular parts of town with lower prices. However, for non-residents, he said the higher costs don’t seem to deter them from buying expensive rental properties as soon as they hit the market, a sign that the higher rental costs aren’t deterring demand. , at least in South Florida.
“Outsiders … have more leeway to pay for their rentals,” he said. “People here in Miami are having a hard time. Rental price increases over the past three years have increased tremendously.”
He noticed that some of those residents struggling with the higher rental prices were forced to leave their two-bedroom apartments and move into a one-bedroom or studio space to make ends meet.
“It’s happened since COVID-19,” he said.
In January, the Tax Foundation released a report that found many people migrated from blue states such as New York and California to red states such as Florida and Texas.
New York was the state with the largest percentage drop, dropping 1.8% from April 2020 to July 2021. Washington, DC saw a whopping 2.8% loss. Illinois, California and Massachusetts are other states with significant losses. In terms of increased migration, Idaho had the highest growth at 3.4%, followed by Florida, Montana, Arizona, South Carolina, Texas, Nevada and Utah.
Overall, given rising rental prices and growing demand, Yllesca said he’s never seen the housing market in his area look like it does now.
According to Redfin, Austin, TX is the metro area with the fastest rising rents over the past year. Rentals in Austin are up 40%. Additionally, parts of Long Island in New York and Newark and New Brunswick, New Jersey, are facing 35% year-over-year increases.
Brian Marks, executive director of the University of New Haven’s entrepreneurship and innovation program, told the Washington Examiner that rental demand could lead to a shortage or scarcity of available properties in less densely populated areas of the country.
But how far rental rates will go is still an unknown, just as price increases in other parts of the economy are. Marks said housing markets in different parts of the country are in a sort of flux and “looking for a new equilibrium price.”