January marked the first month since July 2020 when rental growth didn’t slow—a continuation of recent trends showing the multifamily asset class is stabilizing.
According to new realtor.com research, the US median rent across the largest 50 metros in the country was up 0.8% in January to $1,442, below the pre-pandemic growth rate of 3.2%. The report also shows that like homeowners, renters are increasingly favoring smaller, less expensive markets with strong schools and local economies over pricier tech hubs. That trend, in turn is causing rents in many of the markets where home prices are soaring to increase as well.
New Orleans, Sacramento, Rochester, Cleveland, Riverside, Cincinnati and St. Louis all logged some of the largest rent increases last month, and they’re also among metros where home prices increased by more than 5% year-over-year. And thanks to more flexible WFH and remote work policies coast to coast, an ever-growing cadre of renters are looking for more affordable places to live: according to a MyMove report late last year, as of November more than 16 million Americans left major metros, thanks in large part to the pandemic.
In California, according to realtor.com, Riverside and Sacramento have emerged as more desirable alternatives to the Bay Area and L.A. The median rent in Sacramento is 36.8% lower than San Francisco, while rent in Riverside is 25.4% below Los Angeles. (And let’s not forget, of course, that nearly 70,000 people left the Golden State entirely last year, decamping typically to markets like Phoenix, Las Vegas, Idaho, and Utah).
Four of the top 10 markets with the largest year-over-year rent increases in January were in the Midwest, a region that’s historically provided an affordability haven from pricier coastal markets.
“”Although rents across the US have been growing at a slower pace since the onset of COVID-19 and the major tech hubs continue to see declines, some markets are seeing rents grow by double digits,” said realtor.com Chief Economist Danielle Hale. “Many of the same factors that attract homebuyers to an area—highly rated schools, job opportunities, affordability and quality of life—attract renters. Like homeowners, the pandemic has given many renters the freedom to work remotely, and the rental trends reflect that reality.”
Renters aren’t the only subgroup with their eyes on smaller metros: more affordable cities have also become the darling of multifamily investors, according to recent Newmark research. A whopping 75.8% of multifamily investment occurred outside of major metros last year, marking the highest investment allocation outside of big cities ever.