Rental prices have risen dramatically since the pandemic began, and renters hoping for relief are not likely to see any good news on the horizon.
According to Redfin, the average monthly listed rents in the United States increased 14.1% year-over-year to $1,877 in December. This massive increase comes as the country grapples with inflated prices across most sectors of the economy. Some cities and parts of the country are experiencing even sharper increases, with prices climbing by more than 30% since this time last year.
While the Federal Reserve aims to curb inflation by hiking interest rates for the first time in years, rental prices are still expected to face upward pressure this year as mortgage rates for homeowners grow.
“The growth in mortgage payments has been driven by both climbing prices and climbing mortgage rates,” said Redfin’s chief economist, Daryl Fairweather. “And those rising mortgage costs push more potential homebuyers into renting instead, which pushes up demand and prices for rentals.”
Brian Carberry, the senior managing editor of Rent.com, told the Washington Examiner that the dynamics of rental prices have changed due to the pandemic and shifts in how people work.
For instance, at the start of the pandemic, rent prices sharply declined in major cities (especially in high-end apartments) as employees with the newfound freedom of remote work migrated to other parts of the country. Cities have recently seen many people returning as offices open back up, but the dynamic has changed as more businesses continue to offer remote or hybrid work models.
Carberry said that “location has become less important for a lot of professionals because they aren’t commuting into the office as much, or at all. This provides the freedom to live essentially anywhere, so you are seeing secondary or satellite cities increase in popularity,” he said. “This is creating more demand and competition in these cities, which will drive up rent prices, especially if there is more demand than supply.”
Many of those cities are located in places with amenable climates, such as Texas and Florida. Cities such as Miami have seen a boom in popularity with renters since the pandemic, and that demand, coupled with rental prices pushing upward across the country, has caused prices to soar in South Florida, which has been inundated with people seeking sunshine and lower taxes (Florida has no state income tax).
Manuel Yllesca is the co-founder of Properties Miami, a Florida-based real estate firm made up of about a dozen agents. It has been around for two decades. Yllesca’s business, which deals with luxury and conventional real estate rentals, has been booming, but he said that rental prices have also been booming — as much as 30% from years past.
He told the Washington Examiner that the identical one-bedroom apartments in Miami running for $1,500-per-month a couple of years ago are now getting scooped for up for a $2,400 monthly rate.
Yllesca said that he takes phone calls in his office for at least an hour every day, and lately, he has encountered many people with tight budgets, especially those who already live in Miami. He said customers are primarily grouped into two categories: locals trying to move within the area and those out of state, mostly California and New York.
Yllesca said the locals tend to have tighter budgets and have been trying to downsize or move to less popular parts of the city with lower prices. However, for the out-of-staters, he said that the higher costs don’t seem to be deterring them from snapping up pricey real estate rentals as soon as they hit the market, a sign that higher rent costs are not discouraging demand, at least in South Florida.
“People from the outside … have more room to pay for their rentals,” he said. “People here in Miami, they’re struggling a lot. The increase in rental prices in the last three years has gone up tremendously.”
He has noticed that some of those locals struggling with the higher rental prices have been forced to leave their two-bedroom apartments and relocate to a one-bedroom or studio space to make ends meet.
“This has happened since COVID-19,” he said.
In January, the Tax Foundation released a report that found that 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 most significant percentage decrease, with a drop of 1.8% from April 2020 to July 2021. Washington, D.C., experienced a whopping 2.8% loss. Other states with significant losses include Illinois, California, and Massachusetts. As for increased migration, Idaho clocked in with the most growth at 3.4%, followed by Florida, Montana, Arizona, South Carolina, Texas, Nevada, and Utah.
Overall, with the rental price increases and surging demand in mind, Yllesca said he has never seen the housing market in his area look anything like it does right now.
According to Redfin, Austin, Texas, is the metropolitan area with the fastest-rising rents over the past year. Rentals in Austin increased by an astounding 40%. In addition, 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 the demand for rentals could cause scarcity or shortages of available properties in less densely populated areas of the country.
But just how high rental rates will go is still an unknown, just as price increases in other parts of the economy are. Marks said that housing markets in different parts of the country are in a sort of flux and in “search of a new equilibrium price.”
