Rent prices had been growing at a remarkably stable pace since 2018, with the growth rate rarely rising or falling much from one month to the next. However, this started to change in April of 2020 due to the COVID-19 pandemic and its impact on the US real estate market. Traditionally, monthly rent prices start to go up in the spring, peak in the summer along with lease activity, and then cool off in the fall and winter. New rental market analysis from Apartment List and Zumper show how the coronavirus pandemic has affected this dynamic in many markets across the US. As a result, tenants are inquiring whether rental prices will go down and landlords are concerned about a shutdown in cash flow. Will rent prices go down in 2020? Here’s what recent data reveled.
Why COVID-19 is Impacting the Rental Market
Before we go into the real estate data and what they mean, let’s first explain why rental properties are feeling the impact of the coronavirus in 2020. The US rental market shelters approximately 44 million American households. According to Apartment List, softness in the market has started to impact rent prices. The most noticeable immediate impacts on the rental market are coming from two major factors. First off, the COVID-19 pandemic and a combination of shelter-in-place orders, eviction moratoriums, and general uncertainty caused a temporary restriction on moving activity. Although some restrictions are beginning to loosen, moving is still a more difficult task than usual and is still being actively advised against in many areas.
The second factor is the economic instability that has put millions of Americans out of work. Over the past nine weeks, more than 38 million Americans have filed for unemployment benefits. Many of those who are in jobs that faced the most layoffs tend to be renters. In addition, renters tend to spend more of their monthly income on rent, so they don’t have the ability to save in case of emergencies. The fact that they’ve lost their jobs points to further weakening in renters’ ability to make their monthly housing payments. These two factors explain why rental markets across the US have been hit especially hard by the coronavirus pandemic and why will rent prices go down.
National Rental Price Growth Data
As mentioned, these factors have created softness in the US rental market. This is reflected in Apartment List’s National Rent Report for June 2020. According to their report, the national rent growth index fell by 0.2% month-over-month (from April to May) and many major rental markets are seeing prices fall for the second straight month. From 2016 to 2019, the month-over-month rent growth from April to May ranged from 0.4% to 0.5% according to the company’s data. Right now, the national average year-over-year rent growth stands at just 0.8% – the lowest rate that Apartment List observed in May for the past five years.
Once again, this dip is occurring at a time when property rent increase normally speeds up due to the busy season for apartment hunting and lease activity. This reflects the ongoing uncertainty and economic fallout of the COVID-19 pandemic. But, it’s important for landlords and real estate investors to remember that just because a trend is happening nationally, doesn’t mean it’s affecting every single market. The US real estate market is massive and, when you look at the data, you’ll realize that some areas are being hit harder than others. In addition, while the national trend is that rent prices are going down, some markets are actually experiencing an increase in the average rent price.
Related: 8 Characteristics of the Best Rental Markets.
Rent Growth & Average Rent by City
When asking “will rent prices go down in 2020?” there are certain factors to keep in mind. First is the number of bedrooms in your rental property. As you’ll see from the data below, one-bedroom rentals and two-bedroom rentals have different rent growth rates. For example, the average rent price in the Boston real estate market for one-bedroom apartments dropped 2% while rent prices of two-bedroom apartments stayed flat. We can actually see this trend in a number of real estate markets as well.
Another, more important, factor to keep in mind is the location of your residential rental property. As mentioned, different cities in the US are experiencing different trends in terms of the average apartment rent price increase. According to Zumper, 29 of US largest cities saw rent price increase over the past month, 53 saw rent prices decline month-over-month, while rents held flat in the remaining 18 cities. The top rental markets that had the largest increase in average rent in the US month-over-month are:
- Providence, RI: 5.3% rent increase
- Baltimore, MD: 5% rent increase
- Spokane, WA: 3.8% rent increase
- Tampa, FL: 3.6% rent increase
- Arlington, TX: 3.5% rent increase
On the other hand, rent prices have seen the largest drop month-over-month in these markets:
- Salt Lake City, UT: 4.8% drop in the rental rate
- Milwaukee, WI: 4.7% drop in the rental rate
- Fresno, CA: 4.6% drop in the rental rate
- Anchorage, AK: 4.2% drop in the rental rate
- Tallahassee, FL: 3.7% drop in the rental rate
Take a look at the data provided by Zumper National Rent Report for June 2020 for more details on where are rent prices falling and where are they increasing in the US:
Source: Zumper National Rent Report: June 2020
Check the Zumper report here which includes full data for 100 rental markets in the US.
What This Data Says About the Rental Market 2020
As you can see, rent prices seem to be going up in some markets but going down in others. Why though? It all goes back to levels of supply and demand for rental properties, which differ from one market to another. For example, in some cities, there’s a vast inventory of long-term house rentals but the leasing and moving activity is slow. Will rent prices go down in these areas? According to the laws of supply and demand in real estate, yes. In other markets, however, the demand is high but the supply is low which is leading rent prices to jump. With mortgage interest rates so low, the environment for rental property investing is promising in these locations.
Related: 50 Best Cities for Rental Income in 2020
Furthermore, it seems that the COVID-19 pandemic is creating new trends in the US rental market 2020. We can identify these real estate trends when taking a closer look at the data provided by Zumper and Apartment List.
First is the fact that the coronavirus pandemic is shifting the demand away from the major and most expensive cities in the US. This is mainly because as more companies move into remote work, many renters don’t want to pay the big city price tag if they’re unable to use its amenities. Therefore, they’re looking for more affordable options outside the large, metropolitan areas. This explains why rent is going down in these cities including San Francisco, New York City, Boston, and San Jose. As you can see from Zumper’s data above, all these cities had negative year-over-year changes for their rental prices.
Another noticeable trend is that tourism-dependent cities also exhibit big month-over-month rent price dips. When the coronavirus outbreak first started, the tourism and services sectors were the first to be impacted. Regions that lean heavily on these industries – like Las Vegas, Orlando, and Miami – are expected to be hit with the most severe job market disruptions. Now, those employment effects are filtering through to the rental market. For example, Orlando saw rents fall by 0.8% over the past month. In Miami, rents have fallen by 1.0% over the past two months. And in New York City, May rents were down 0.6% compared to April.
Rent Increase Predictions for the Long-Term
While these rent decreases are notable, it’s important for landlords and real estate investors to keep in mind that the overall scale of the rent price changes is still fairly modest. According to Apartment List, the 0.2% month-over-month national rent drop mentioned earlier translates to a discount of just $2 on the average apartment rent price. Meaning, the effect of the COVID-19 pandemic on rental prices hasn’t been dramatic. Yes – rent prices in many cities have flattened during a time when they normally would be trending up, but there hasn’t been a massive collapse in rent prices either.
Moreover, as people are losing their jobs and the ability to pay rent, most property owners appear to be responding to this new reality by offering lower prices to fill vacancies. That, in addition to the various eviction moratoriums in place nationwide and the already limited turnover supply, has discouraged people from moving, reducing the number of vacant apartments. As a result, rent prices in the US, much like home prices, have remained stable during the coronavirus. As far as longer-term impacts, experts say the pandemic’s effect on rent prices will depend heavily on how quickly the economy is able to recover.
Even in the best-case scenario, it’s possible that we’ll see a prolonged uptick in downgrade moves. This is because many households facing financial hardship due to COVID-19 have started looking for more affordable housing. Furthermore, we may see a significant slowdown in new household formation, as more Americans move in with family or friends to save on housing costs. Landlords of long-term rentals would benefit from these trends as they could lead to tighter competition for rental units at the middle and lower ends of the rental market. In this case, the answer to “will rent prices go down in the US?” is yes, but only for the short-term.
Related: Long Term Rental Properties are Best Investments During a Pandemic
The US property rental market still offers great investment opportunities to earn passive income. To stay updated on how the pandemic is impacting the US real estate market, keep reading our coronavirus real estate trends blogs. Also, make sure you’re using Mashvisor – the best real estate investment software to find and analyze the best residential rental property for sale and analyze its potential rental income and cash flow using rental property data and predictive analytics. Sign up for Mashvisor now with a 15% discount with promo code BLOG15 to get started!