Apartment List National Rent Report

Apartment List ,  May 28, 2021

Introduction

Welcome to the June Apartment List National Rent Report. Our national index increased by 2.3 percent from April to May, representing the third straight month of record-setting rent growth, going back to the start of our rent estimates in 2017. After this recent spike, year-over-year rent growth now stands at 5.4 percent nationally, and prices are now in line with where we expect they would have been if the pandemic-related rent declines of 2020 never occurred.

That said, the data continue to exhibit significant regional variation, and there are still a number of markets where rents remain well below pre-pandemic levels. But even in these markets, the trend has turned a corner. Rents in San Francisco, for example, are still 17 percent lower than they were in March 2020, but the city has seen prices increase by 13 percent over just the past four months. 9 of the 10 cities with the sharpest year-over-year declines have now had four consecutive months of rising rents. At the other end of the spectrum, many of the mid-sized markets that have seen rents grow rapidly through the pandemic are showing that there’s still steam left in the current boom – Boise rents jumped by a staggering 6.6 percent just this month and are up 31 percent since the start of the pandemic.

Pandemic declines in national rent index have been wiped out

Our national rent index is up by 2.3 percent month-over-month, the largest single month increase ever recorded in our estimates, which begin in January 2017. This is the third straight month in which that record has been broken, following a 2.0 percent increase last month and a 1.4 percent increase in March. In March, prices rebounded to their pre-pandemic levels. This month, we hit a new milestone – our national index is now above the level where we project it would have been if the pandemic-related price declines of 2020 had never occurred at all.

In the chart above, we plot the national median rent from 2018 to present. The data for 2018 and 2019 depict the smooth seasonality of a typical year, in which prices peak during the summer busy season and then dip slightly in the winter off-season. Overall, prices increased by 2.9 percent in 2018 and 2.1 percent in 2019. 2020 represents a clear break from this trend, with rents declining in the early months of the pandemic during what is normally peak-season. The dashed line in the chart represents a projection of how we expect that rents would have changed over the past year in the absence of the pandemic. This projection is based on an average of the growth rates that we observed in 2018 and 2019. Actual rent growth had been trailing this projection since the start of the pandemic, but this month’s record setting growth has now put actual rents ahead of the projection. Year-over-year rent growth now stands at 5.4 percent, another record in our data.

Rents in coastal superstar cities continuing a strong rebound

It’s important to bear in mind that there is still significant regional variation in rent trends, and prices in a number of markets are still well below pre-pandemic levels. That said, even in these markets, prices are rebounding rapidly. San Francisco headlines throughout the pandemic for the staggering 26.6 percent drop in rents from March 2020 through January 2021, but since January, San Francisco rents have increased by 13.4 percent. Although rents in San Francisco are still 16.8 percent below pre-pandemic levels, the market has clearly turned a corner, and the best deals appear to be behind us.

Beyond San Francisco, we’re seeing a similar trend playout in all of the cities where rents had been falling fastest. Nine of the ten cities with the sharpest year-over-year rent declines have now experienced positive rent growth for four consecutive months. Four of these cities – San Jose, Washington, D.C., Boston, and Minneapolis – have seen rents increasing for five consecutive months. The following chart shows month-over-month rent growth from 2018 to present for six of the cities that have been hit hardest by the pandemic:

In each of the panels in the chart above, we see three distinct phases:

1. 2018 and 2019 illustrate the typical seasonal price fluctuations of pre-pandemic years, with the bulk of annual rent growth occurring during the spring and summer, followed by modest declines during the fall and winter off-season.
2. With the start of the pandemic in 2020, we see a sharp break from the prior-year trend, with large month-over-month declines persisting throughout the year.
3. In 2021 we see a sharp rebound back to positive rent growth, with monthly increases larger than what was typical pre-pandemic.

In each of the six cities shown, the fastest single-month rent increase has taken place in 2021. Rents are still below pre-COVID levels in each of these cities, but they’re quickly catching up. Nowhere is the trend stronger than in Boston, where prices have increased by an average of 3.4 percent per month in 2021 – if that pace continues, Boston rents will surpass March 2020 levels by mid-summer.

Affordable mid-size markets continue to boom

As expensive coastal cities watched rents plummet throughout 2020, another group of mid-sized markets were heating up. The pandemic and remote work spurred demand for the space and affordability that these cities offered, and in response, rent prices grew even as the surrounding economy struggled. But while rent declines in expensive markets have reversed course, the cities where rents have been growing fastest are continuing to boom.

Leading the trend is Boise, ID, where rents grew by a staggering 6.6 percent over just the past month. This is the fastest month-over-month growth rate among the nation’s 100 largest cities, and Boise also continues to rank #1 for fastest year-over-year growth, which now stands at 30.8 percent. All of the 10 cities where rents have grown fastest since the start of the pandemic continued to see increases this month.

Many of these markets had been heating up prior to the pandemic. For example, from January 2017 to January 2020, rents in Mesa, AZ increased by 25.5 percent, the fastest growth in the nation over that period. Fresno ranked third for fastest rent growth from 2017 to 2020, while Chandler, AZ ranked sixth. Eight of the ten cities with the biggest pandemic booms were in the top 20 for pre-pandemic growth from 2017 to 2020. The pandemic did not necessarily start a new trend in these markets, so much as accelerate an existing one. This stands in contrast to what has happened in the expensive markets discussed above, for which the rent declines of the past year were a complete aberration. Given this longer-term context, as well as the continued upward trajectory in rent trends, it seems that Boise and cities like it have yet to hit their peaks.

COVID shakeups have led to some convergence of expensive and affordable markets

As described above, affordability has been a key determinant of whether cities are experiencing falling or rising rents during the pandemic. The relationship is made more explicit in the chart below, which plots rent levels against rent changes for the 50 largest cities in our data. There is a clear correlation between the two; the cities that had the highest pre-pandemic rents in March 2020 (moving right along the x-axis) have seen the steepest rent drops since then (moving down along the y-axis).

Meanwhile, more affordable cities have tended to see prices climb. This has led to a certain degree of convergence in rent prices across the country – the most expensive markets have gotten somewhat more affordable, while the most affordable markets have grown pricier. For example, last March, the median 2-bedroom rent in San Francisco was $3,146, which was 3.4x the $929 median for a 2-bedroom in Boise. As of this month, the 2-bedroom median in San Francisco has dropped to $2,610, while in Boise it has grown to $1,229, meaning that rents in San Francisco are now just 2.1x those in Boise. While still a significant price difference, the affordability gap has narrowed substantially, and even as rents in San Francisco have rebounded in recent months, Boise has continued to grow even faster.

Conclusion

Although the pandemic created some softness in the rental market last year, 2021 has seen some of the fastest rent growth we have on record in our data. Nationally, rents have now surpassed the level where they would have been if rent growth had not been disrupted by the pandemic. In markets like San Francisco where rents had been falling fastest, prices have turned a corner and are now rebounding. At the same time, booming markets like Boise continue to see prices climb. More broadly, rental inventory across the nation remains tight, and as vaccine distribution continues to gain momentum, we may be seeing the release of pent up demand from renters who had been delaying moves due to the pandemic. Whereas last year’s peak moving season was halted by the pandemic, this year’s seasonal spike appears to be making up for lost time.

A Note on Our New Rent Estimate Methodology

Apartment List has long been committed to making our rent estimates as accurate and transparent as possible. With this in mind, we recently introduced a new methodology that rethinks our approach while building upon the robust foundation that was already in place. The most significant change in our new methodology is that we are now aiming to identify transacted rent prices, as opposed to the listed rent prices on which our old methodology was based. This controls for price fluctuations that arise over the course of a vacancy. Using these transacted prices, we calculate rent growth rates based on a same-unit approach that controls for compositional changes in the rental stock. As before, we continue to combat luxury bias in our rent data by using fully-representative median rent statistics from the Census Bureau’s American Community Survey.

To learn more about the data behind this article and what Apartment List has to offer, visit https://www.apartmentlist.com/.