Primary markets as most of you know are suffering. What we are seeing is a lot of secondary markets by the big cities are heating up as the cities cool down. For example, as Washington DC cools, Virginia Beach heats up. Same with San Francisco -> Sacramento and Los Angelis -> Riverside. The truth is, these more expensive cities were already at their tipping point prepandemic. The pandemic only accelerated it.
The cities experiencing the biggest drop off in rent prices generally fall into two categories:
-Markets where the local economy is heavily dependent on tourism (Miami, Orlando)
-Expensive markets (San Francisco, Seattle, New York, San Jose)
Year-Over-Year Rent Growth:
San Francisco & Bay Area Continue Downward Spiral
- Rents decreased 0.3% in August on a year-over-year basis, unchanged from July. Of the top 30 markets, year-over-year rent growth is negative in 16 markets, a slight improvement from the 17 negative markets in July, with Raleigh (0.4%) flipping positive in August.
- The three markets with the largest year-over-year rent declines remained unchanged from July: San Jose (-5.5%), San Francisco (-5.1%) and Boston (-2.5%). Rents in San Jose and San Francisco have continued to deteriorate rapidly since March, while rents in Boston have remained steady. Since March, overall rents have declined by $143 in San Jose and $97 in San Francisco.
-Among the markets that flipped negative on a month-over-month basis in August were Austin (-0.3%), Tampa (-0.2%) and Seattle (-0.1%). Tampa fared the worst, declining 100 basis points in August on a MoM (Month over Month) basis.
-Tampa is one of 12 markets where Lifestyle rent growth is out
performing Renter-by-Necessity rent growth. The Lifestyle asset class in Tampa is likely benefiting from an exodus out of New York, where renters are used to extremely expensive rental prices, causing them to be unfazed by the price of a Lifestyle rental unit in Tampa.
-The downward pressure on rents in Austin could be from the large amount of completions in the last few months. As of August, roughly 4% of total stock had been delivered in the past year. Another factor that could be affecting the declining rents in Austin and Tampa is the increasing homeownership rate.
-While job growth in Nashville and Raleigh was significantly affected by the COVID-19 pandemic, these two markets fall in the top half of our Matrix top 30 markets for YoY job growth as of June 2020. Job growth in Nashville as of June 2020 was -3.2%, while job growth in Raleigh was -4.8%.
Long Term Impact
As far as longer-term impacts, the pandemic’s effect on rent prices will depend heavily on how quickly the economy is able to recover specific to each area. There are indications that the recovery will be more drawn out than many had initially hoped, making it likely that we’ll see a stagnation in rent growth or even a downward trend because due to large unemployment numbers, families will begin looking for more affordable housing. We may also see a significant slowdown in new household formation, as more Americans move in with family or friends to save on housing costs.That being said, we will see many homeowners become renter’s as well.
These trends could mean that competition will remain tight for rental units at the middle and lower ends of the market, while luxury vacancies get harder to fill. As long-term remote work gains traction, we may also be seeing the beginning of a shift away from expensive downtown markets and toward more affordable suburbs.