Kaitlin Cindrich faces a monthly rent increase of $ 200 in August if she and her husband can renew the lease on their apartment in Provo, Utah. This 25% jump is not something she expected, and the 21-year-old fears she may have to skip doctor’s appointments for her autoimmune disease in order to keep up with payments .
Still, she admits there isn’t much choice but to pay more. “We hope to stay because everything is so expensive right now that I would pay the same whether I am here or elsewhere,” Ms. Cindrich said.
The rental market, which collapsed during the pandemic, has recovered faster than many economists anticipated, and renters across the country are facing the shock of the stickers. When the pandemic hit, many people who lost their jobs ended their apartment leases to temporarily live with their parents or roommates. Others fled the big cities for health reasons. Apartments became empty and landlords started offering incentives, such as a free month, to attract tenants.
Today, as people move on their own or return to cities and office jobs, and existing tenants find they cannot afford to buy a home in a booming housing market, the demand for apartments and single-family rentals is rebounding – and even hot air in some places. Last month, rents were up 7% nationwide from the previous year, according to data from Zillow. While this was measured against a weak June 2020, the gain was also solid 1.8% from May.
“After a year, jobs are coming back strongly, which recreates the demand for rental housing and the occupancy rate increases,” said Lawrence Yun, chief economist of the National Association of Realtors.
If rents continue to take off, this could be bad news both for those looking for housing and for the country’s inflation outlook. Rental costs play a disproportionate role in the consumer price index, so a significant increase in these could help keep this closely watched government price indicator, which has risen sharply, for longer. Rents are only about half as important to the Federal Reserve’s preferred personal consumption expenditure inflation index, but a long period of high CPI inflation can influence consumer expectations for increases future prices, which in turn could accelerate them.
Consumer prices surged 5.4% in the year through June, but much of the increase was linked to the economy reopening after the pandemic. Fed and White House policymakers have maintained that today’s strong pricing pressures are expected to ease as the economy returns to normal, as one-off issues pushing up prices for commodities. Used cars are solved and an increase in demand which increases the costs of furniture and washing machines begins to assuage.
Yet this is where housing costs could come into play. Rent metrics and what is known as “landlord rent equivalents” – which uses rental data to try to determine the price landlords would pay for their home if they had not bought a house – represent almost a third of the consumer price index. Both tend to move slowly, but defy expectations that they would take a long time to rebound.
“We are already seeing homeowners’ equivalent rent rising quite sharply,” said Alan Detmeister, an economist at UBS and former Fed personnel officer. “I think it’s going to get worse later this year and early next year.”
He and other economists said it was too early to say to what extent and for how long rents would support overall prices.
“I think we’ll see a rise in rents, and that will offset some of the declines in property categories,” said Michelle Meyer, head of the US economy at Bank of America. But the “only way” for rents to rise enough to keep inflation uncomfortably high, she added, is “if wages are consistently higher”.
The amount that landlords can charge depends on what tenants can afford. The lowest-paid workers are seeing big wage gains, but many economists expect these to fade as the economy reopens.
Another key factor, Mr. Yun said, is whether “home builders are active in providing new homes and apartments to cope with the rising rents.”
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The data suggests that a substantial new supply of apartments is expected to be on the way this year, but it is unclear whether they will match demand in terms of location and timing.
For now, the rental experience differs depending on the market. Rents have appreciated quickly in places like Boise, Idaho; Spokane, Washington; and Phoenix, while major coastal cities have lagged behind, based on Zillow data. Rents in New York and San Francisco are recovering rapidly but remain cheaper than two years ago.
In New York City, “the rental market has been crushed,” said Jonathan Miller, managing director of Miller Samuel, a local real estate appraisal company. But the pace of new leases over the past three months, with stories of bidding wars, is reversing the trend. Mr Miller expects rents to recover completely as companies bring workers back to the office this fall, pulling them out of far-flung and remote workplaces, he said.
“There is going to be another wave,” he added. “We just passed the Zoom Peak. “
Data from Apartment List, an ad site, confirms the trend seen in Zillow’s figures: So far in 2021, nationwide rental prices have risen 9.2%, up from 2% in 3% typical from January to June. According to the most recent data available, prices were higher than what Apartment List economists might have predicted had pre-pandemic trends continued.
“In the short term, prices will continue to skyrocket, as occupancy rates are currently very high,” said Igor Popov, economist at Apartment List. He said price gains are expected to moderate as supply increases, but it was not clear when that would happen.
Meanwhile, the warmth of the housing market should keep rental demand strong.
“Rents are a factor in the delay in the appreciation of house prices,” said Nela Richardson, chief economist at employment data provider ADP, who previously worked for real estate company Redfin. “You have a housing market that is chronically under-supplied and has been for a decade. It’s not going to go away.
Higher rental costs can have a big impact on people’s lives. Christine Gitau, 23, of Homewood, Alabama, returns to live with her parents because she can’t afford the $ 100 increase to renew her lease on the $ 530-per-month apartment she started for rent last July.
“I am very frustrated, angry and stressed about the rising rents,” Ms. Gitau said.
Ms Cindrich in Provo, a full-time student at Brigham Young University, worries that she will have to apply for more student loans to pay for her apartment or cut spending in other areas.
“I have severe autoimmune disease and spend hundreds of dollars every month on drugs,” she said. “The rent increase probably means that I may not be able to make my monthly doctor’s appointments. “
This human impact makes raising rents a political challenge, especially when the Biden administration is already pushing back Republicans’ attacks on soaring inflation.
Administration officials say they are monitoring house prices and their effects on inflation. They continue to insist that most of the price pressures in the economy are temporary.
Officials, and President Biden himself, have also pushed for additional spending measures that will over time increase the supply of housing and, officials say, keep rent increases, housing price spikes and inflationary pressures.
Mr. Biden’s $ 4 trillion economic program includes $ 213 billion to help launch more affordable housing. These efforts were not included in the bipartisan infrastructure deal he struck with centrist lawmakers, but they could lead, at least in part, to a stand-alone spending bill Democrats plan to pass. this summer in Congress.
Even if successful, these efforts will take years to bear fruit.
Some, like Dr Popov, expect recent gains to moderate on their own this year. Others said bigger increases could be coming: Many consumers are bursting with cash from government stimulus checks, and the Fed’s cheap borrowing policies are heating up the housing market.
“There is a tremendous amount of stimulus, and I think it has the potential to put upward pressure on rental prices,” said Mr. Miller, the valuation manager.