How COVID Has Affected Rental Prices
As the end of the pandemic appears to be in sight, many are wondering about the lasting impacts and how COVID has affected rental prices. Naturally, one key area of focus is real estate markets and rental markets. Since March of 2020, there have been drastic disruptions to rental markets across the country due to the rise in unemployment, a federal moratorium on evictions, and shifts in housing demands.
While 2020 has been a difficult year, many landlords have settled into a new normal. However, there are still many questions about what to expect in the coming years, how quickly some rental markets will recover, and whether shifts in demand will be long-term.
Rental Prices in 2020
In November of 2020, the median rental price in the United States was $1,734, which was up 1.1% from November of 2019. This is a slight recovery from August, where rental prices were up only .7% from the previous August, but a considerable decline from February, when the growth rate from the previous year was 3.8%.
Nationally, overall rent prices went up, just at a much slower pace than during an average year. However, rental markets in major cities saw substantial declines. At the end of the summer, usually a peak time for rentals, prices were down 4.6% in New York, 4% in San Francisco, and 2.8% in Boston.
Concerns over being in densely populated areas coupled with a surge in both unemployment and employees working remotely led many tenants in urban areas to leave for the lower prices of suburban areas or to move in with family members. Additionally, economic instability and the restrictions due to COVID deterred the usual influx of recent college graduates and young professionals to major cities.
How COVID Has Affected Rental Prices
The result was a steady trend of rental prices dropping in densely populated areas and rising in suburban towns and mid-sized cities. An economist at Zillow, Joshua Clark, puts it simply, “Big cities are losing demand because people are having a hard time finding jobs during the pandemic.”
He goes on to predict that there will be further drops in rental prices in major cities. One data point that supports this prediction is a rise in concessions like waived security deposits, free months of rent, and free parking. Landlords would rather give concessions than reduce rent, and a substantial increase in concessions generally means rent prices will drop in the near future.
At the same time, however, mid-sized cities, especially those throughout the midwest and sunbelt, have seen rising rental prices. Places like Tulsa, Memphis, Durham, and Providence are seeing about average growth in rental prices.
What to Expect in 2021
While there is reason to believe that rental prices in major cities will continue to struggle in the coming months, there is also reason to be optimistic about what’s ahead. One key takeaway for landlords is that the rental market remains stable and, even in areas hardest hit by the pandemic, it will recover.
As many companies move towards long-term plans to have employees working remotely, some worry that major cities will face long-term effects. Yet, as rental prices in cities drop, the benefits of being in the suburbs diminish and tenants will begin moving back into cities. Further, as COVID restrictions are lifted and the economy recovers, the demand will return.
Landlords in midsize cities and suburbs should expect rental demand and prices to remain strong in 2021. While major cities will likely see reduced demand and prices in the next few months, that demand will return as the pandemic ends and the economy stabilizes. When this happens, rental prices will go back up.
It has been a difficult year for landlords. While some parts of the country have been more impacted than others, rental markets remain stable and show every indication that they will recover over the course of the next one to two years.
For questions about rental prices in your area or for resources to ensure that you’re maximizing your return, visit ezLandlordForms.