Multifamily Rent Trends are Back on Track

Although this year’s peak season was significantly disrupted due to the COVID-19 pandemic, Apartment List’s national index has stabilized back to a more typical trend during the past few months. Rents fell by 0.5% last month, which is consistent with historical rental trends in which rents have declined 0.5% from October to November in each of the last three years. Year-over-year, national rents are now down 1.3%.

Beyond the national figures, however, there are tremendous regional variations in rent trends. Pricier coastal cities such as San Francisco, Seattle and New York City are continuing to report rapidly decreasing rents, while traditionally affordable suburban cities have actually become more expensive during 2020.

In 27 of the nation’s 30 largest metropolitan areas, principal cities are experiencing faster rent drops than in surrounding suburbs, according to Apartment List. In suburban cities, rents have rebounded quickly and are 0.5% higher today than at the start of the year.

A sample of the nation’s 50 largest cities highlights the degree to which COVID-19 has disrupted the rental market in expensive cities. There is a clear correlation between rent levels and rent changes: the cities that had the highest rents in March had the steepest rent drops since then.

Seattle and Boston had the nation’s most dramatic November rent declines (5.6% and 5.2%, respectively), pushing past New York which had previously occupied the number two spot throughout most of the summer. Today, Seattle ranks second with a 19.1% rent decline since March, Boston ranks third, New York City falls to fourth and San Jose rounds out the top five. All of the cities on this list have lost more than 10% of rent prices during the pandemic months.

These are some of the most expensive markets in the country where most workforces are embracing remote work. Furthermore, workers who have been laid off or furloughed in these cities likely have little buffer for exorbitant rents. Coupled with seasonal trends, these factors have led to a softening in demand in these cities that has caused some of the sharpest rent dips on record.

As the priciest cities lose some allure, interest in more affordable mid-sized cities seems to be picking up with accelerated rent growth in recent months, potentially driven in part by renters taking advantage of remote work arrangements. In Boise, rents have increased by more than 9% since March. And, Boise’s for-sale market has also been heating up.

While renters are making housing choices independent of job locations, many of the cities with the fastest rent growth are still within commuting distance of larger job centers, or what is known as a hub and spoke model. This indicates that workers who are planning for a permanent shift toward remote work still value the option of going into offices when needed.

Since the start of the COVID-19 pandemic, shelter-in-place ordinances put a halt to normal activity, combined with staggering job losses. Although some laid-off and furloughed workers have been brought back, the unemployment rate remains startlingly high, and the economic recovery is likely to be slow and gradual.

This heightened financial hardship has forced many Americans to look for more affordable housing options. As a result, there has been a sharp drop-off in demand for expensive rental units in cities such as San Francisco and New York, while more affordable midsize cities such as Boise are continuing to heat up.