Although COVID-19 significantly disrupted the peak summer renting season, the rental market is beginning to display its more typical behavior as fewer moves take place as autumn moves toward winter, causing a decline in rent prices. However, the effects of the ongoing pandemic still linger, with prices falling in several expensive coastal cities, while rents in major midsize cities have grown over the course of the lockdown. Nationwide, rents for all homes have risen 1.4% year-over-year (YOY), according to the latest information from the Zillow Observed Rent Index.
Overall, Zillow reports that rent prices have risen in 98 of the 105 largest metros in the United States, although 11 of those markets reported slower growth than the national average (1.4%), and six have seen a slowdown in rents compared to last year. Rent prices in Austin, Texas, have remained static year-over-year.
10 Cities Where Rents Are Rising the Fastest
Rents have risen the most in Memphis and Syracuse, where prices have increased by 7.2% and 6.7%, respectively. Other cities that experienced the most substantial rent price increases were also midsized, with the notable exception of Phoenix, Ariz., which has a population of more than 1.68 million people. Below are the 10 cities where rents have risen the most YOY, according to Zillow, along with each city's current median monthly rent:
Conversely, rent prices in San Francisco and New York City fell the furthest YOY, albeit by a more modest 2.7% each. According to our research, half of the cities that experienced rents decreasing have notably large populations, ranging from San Jose's approximately 1.02 million people to New York City's more than 8.34 million. Additionally, the top four cities with the highest rent price drops are located in expensive coastal states.
Under ordinary circumstances, millennials might be drawn to tech centers like Seattle and Portland for the jobs and high salaries, though the resultant high demand for a limited number of rental units would inevitably drive up prices. The ongoing pandemic, however, has caused significant priorities shifts as residents of major cities, such as New York, have fled to less densely populated areas in order to minimize their risk of infection and because they can work remotely. The fact that rent prices are often cheaper in these midsized areas, as can be seen in the above tables, is certainly a plus. The long-term effects of these urban exoduses, however, likely won't become clear until the current health crisis is resolved.
Prior to the lockdown, many renters were spending well above the recommended 25% to 30% of gross monthly income on rent (the U.S. Department of Housing and Urban Development considers a household to be burdened if it spends 30% or more of its income on rent). A study from Apartment List found that the majority of renters in San Diego (57.8%), Los Angeles (56.9%), and Sacramento (54.7%) spent more than 30% of their incomes on rent each month in 2018.
Rising Rents and Homeownership
When rent prices rise, renters naturally have less money to spend each month, which means they have less money to save too. Consequently, homeownership has become out of reach for many. With less leeway to save for a down payment, even those earning a solid income may have trouble getting a mortgage. At 67.4%, the current rate of homeownership is 5.5% higher than it was during the same quarter in 1965, which is the year when the U.S. Census Bureau first began tracking this data.
Of course, there could be nonfinancial reasons behind the drop in homeownership, such as delaying significant decisions like marriage or having children, but high rent prices aren't helping. According to Zumper's 2019 State of the American Renter Report, the majority of participants (62%) stated that their financial situation was the primary reason behind their decision to rent over buying a home.
The Bottom Line
High rent prices make it difficult to save to buy a home, which can affect not only individuals and families but also entire communities. According to a report from the National Association of Realtors, homeownership fosters a sense of community, reduces crime rates, and brings stability to neighborhoods. Now that the coronavirus has driven so many out of the U.S.'s biggest cities, it remains to be seen how affordable (or pricey) renting will become in both the country's largest and smallest metros in the future.