SEATTLE, WA – As the market for sale has shaken off the early effects of the coronavirus pandemic and resumed its violent pace before the pandemic, rental growth slowed this spring. According to Zillow data, rental prices have slowed more in urban areas than in suburbs. This is a possible signal that tenants' preferred location is leaning towards the suburbs.
Rents chugged at a steady pace earlier this year, but the increase rose Unemployment has hit tenants harder than homeowners and has hit millions moved back in with parents or grandparents, which had an impact on the demand for rental properties. This has caused rental growth to slow from February to June.
During this period, rental growth has slowed more in urban zip codes than in the suburbs – annual rental growth has slowed two percentage points in urban areas compared to 1.4 percentage points in suburban areas. That's a subtle split, but it goes against the trend seen just before the arrival of COVID-19 in the US, suggesting that the shift was affected by the pandemic. Both urban and suburban tenants have no rental payments or have similarly moved home during the pandemic. As a rule, however, cheaper suburban rents are more attractive to those who no longer have to commute or temporarily cannot take advantage of some of the amenities of city life.
Tenants tend to have more flexibility than homeowners because of their relatively short rental periods, and as a result rental prices often move faster. Zillow search traffic data does not yet show that home buyers are more interested in suburban homes than in years past, and both areas are seeing similar growth in home value, market time, above list sales, and new pending sales rates . However, survey results show that working remotely is causing many to rethink their options. If this early shift in the rental market indicates a wider change in preferences, similar changes in the sales market could follow, but the economic impact on tenants may play a bigger role.
"It's important to separate how much of the trend we're seeing comes from changing tastes versus the economic reality of tenants," says the Zillow economist Joshua Clark. "It may be tempting to conclude that urban tenants who have been cooped up with no outdoor space and unable to visit their favorite local bar are willing to devote themselves to suburban life, and that is likely to meet many to. But that narrative ignores the job loss that has hit tenants disproportionately employed in the hardest-hit industries, and has likely played a bigger role in the last few moves. "
This split between urban and suburban rental growth was present in more than half of the major US metros studied. The biggest gaps were in Dallas-Fort Worth, Sacramento, San Francisco and the bigger new York Metro.
Not all markets follow this pattern. Urban rental growth has outpaced suburban growth in some metropolitan areas, and the difference is greatest in Kansas City, Detroit, Baltimore, Riverside, and St. Louis. Rents are accelerating in Kansas City's urban and suburban areas, but urban rents are accelerating. Rental growth in Baltimore slowed before the pandemic and has continued down this path.
