Hot Housing Market Extends to Rentals As Prices Surge

Real estate agent showing a property
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Soaring home prices are not just for buyers. They’re for renters, too, as rents start to climb in many markets around the country, with few exceptions.

Key Takeaways:

  • The rental market is mirroring the homebuying market, with strong demand pushing rents up 1.3% in April, the fastest monthly rate in about a decade.
  • Landlords are taking the opportunity to increase rents when a new tenant takes over a unit, pushing up new lease trade-outs, or the difference between the new and prior rents.
  • No quick relief is in sight and rents are likely to continue increasing, with occupancy rates holding strong, analysts said.

April rents on new leases in the U.S. jumped by an average of 1.3% month-over-month, marking the largest single month increase in about a decade, according to RealPage, which collects nationwide data from millions of apartment units using its own property management, revenue management, and analytics platforms. And that growth is likely to gather pace as the prime leasing season begins. Most household moves occur from April through September.

“Through the pandemic, apartment rents outperformed most analyst expectations,” Jay Parsons, RealPage’s deputy chief economist and vice president of asset optimization, wrote in a report. “And coming out of the pandemic, apartment rents could blow the top off all expectations–including our own, which have generally been more bullish than others.”

Large rent increases are mirroring the patterns seen in the housing market, where huge demand and lack of supply are pushing up prices of existing homes to all-time highs. The rent increases are especially striking in the suburbs, where about 90% of rented apartments are located. In some major metropolitan areas, on the other hand, rents are still down dramatically from pre-pandemic levels, despite the recent uptick.

The overall increase in rents also is organic, and not just the result of an economic recovery coming off a low baseline. 

Donald Davidoff, president of rental and housing consultant D2 Demand Solutions, said “the month-over-month increase in rents is a strong indication of growing demand. And just based on seasonality, not even with the recovery, I’d expect rents to keep rising through August.” 

Coastal Cities Still Down 

Of the 150 metropolitan areas tracked by RealPage, 145 showed at least a modest increase in rents in April, while four were flat and one, Davenport, Iowa, showed a slight dip. Among major markets with at least 100,000 units, Phoenix’s rents rose the most, by 2.6%. 

On a year-over-year basis, annual rents rose 1.7%, with 110 of 150 major metro areas showing a 3% or more increase, which is on par with pre-pandemic levels.

The gains correlate with a pandemic-era shift among renters from crowded cities to suburbs and beyond. Even with the gains in April, some major markets, especially on the coasts, continued to see sharply lower annual rents than a year ago. San Francisco was still down 18.3%, San Jose 14.5%, and New York 14%.

But outside of these coastal areas, according to Parsons, rents never fell much last year, so “the growth of 2021 is not merely offsetting cuts from 2020.” In fact, in some markets, strong demand is pushing apartment occupancy, already at more than 95%, to “uncomfortably high levels,” which is helping to drive rents higher. 

Overall new lease trade-outs, or the difference between the rent of a new signed lease and the rent a prior tenant paid—different from the month-over-month move in price increases—was 7.5% in April. Parsons forecasts rent growth on signed new leases could even see double digits by the end of May in many U.S. markets, based on mid-month data.