Where Are Rents Rising? Rent Price and Inventory Report (Q3 2020)

How are rent prices and inventories trending in the strange year that is 2020? With the year’s third quarter behind us, it’s time to take a look.

For the majority of this study, I am going to be using an index I am developing that follows the top 100 rental markets (by size) in the United States.

If you’re looking for more in-depth data on smaller markets, you can download the spreadsheet here (password: insights). But I find looking at larger markets preferable when determining a national average. Small markets show greater month-to-month fluctuations—and I want to broadly discuss the United States’ rental performance.

In this report we’ll be looking at what happened in September, as well as Q3 as a whole.

Rental listings increased

The total number of active rental listings across the U.S. increased slightly more than 5% from August to September, after a surprisingly large drop in August. Similarly, total listings were up 5% in September on a year-over-year basis.

However, these increases were not enough to show year-over-year (YoY) gains for the quarter as a whole. In fact, the total number of active listings in Q32020 was 4% lower than in Q32019.

This finding is in line with what we’ve seen throughout this year. I believe that listings are down largely due to COVID-19—just like everything else this year! Given the financial uncertainly defining this year for many Americans, it seems renters and landlords have found mutually beneficial arrangements that keep more tenants in place.

Put another way: Renters probably don’t want to move during a pandemic, and landlords don’t want to risk vacancies.

Rent prices declined

September saw a modest 2.5% decline in median rent from August. That’s a larger drop than we saw last year, when the median price remained essentially flat from August to September. Year-over-year, the median rent price is also down in September, but the decline is milder—just a 0.6% decrease.

The median rent price actually increased 1.2% from Q32019 to Q3 2020—demonstrating strength and resilience in the rental markets despite the numerous challenges 2020 has brought.

While the chart above does seem to show a dramatic drop, keep two things in mind.

The zoom level of this chart, which makes price changes look more intense than they really are. I do that on purpose so you can actually see the month-over-month changes—if I zoom out, it looks flat.
Pricing changes tend to come down in the second half of the year, as you can see in the chart below. Real estate activity peaks during summer, so that doesn’t concern me. I believe the fundamentals of rental market pricing have not changed over the last several months.

The best and worst market performances—and some comeback candidates

While the above charts show the performance of the rental markets in aggregate, investors find true value by looking at the details of each market.

In order to evaluate how individual markets are performing, I look at three different time ranges:

Year-over-year: This is what I like to look at when examining markets. YoY figures help an investor see the broader picture without overreacting to short-term fluctuations in numbers. It also accounts for seasonality—so if December always has low rents, we should directly compare this December to last December.
Year-to-date (YTD): What has happened in 2020? In normal years, I wouldn’t put as much stock in YTD numbers as I am this year, but this isn’t a normal year! In fact, YTD data can tell us a lot about how markets are performing since the pandemic hit, since lockdowns began close to the beginning of the year.
May-September (MtS): I invented this metric because I wanted to see how various markets were performing since the economy reopening began. Can we learn anything by comparing this timeframe to our YTD or YoY numbers?

Let me add one important caveat: This is a weird year (as if anyone needs reminding). We are seeing massive rent surges in some markets and large declines in others. This level of volatility is not typical and is un likely to be sustained.

My guess is that things will stabilize as the virus gets under control—but the goal for this article is to show what is happening right now according to our rental listing data.

Top performing markets

According to the metrics I laid out above, the 10 markets below show excellent performance.

I have sorted the markets by their YoY increases from best to worst. I think this makes the most sense, given that YoY data is a more stable and reliable metric than the other two.

In fact, most of these markets are continuing to show rent increases, with the exception of Tucson.

Why are rents rising in these markets during a period of economic uncertainty and high unemployment? I can’t say for certain, but can offer two ideas—based primarily on the fact that listing volume is down dramatically in most of these markets.

These are just opinions, and I could certainly be wrong, but I don’t believe that demand is actually rising so much that it is pushing rents up, as seen in the 45% increase in cities like St. Louis. I also don’t think landlords are dramatically raising rents on current tenants—I hope landlords are being compassionate! I believe these dramatic changes reflect a change in the type and volume of units being listed.

New inventory from new builds, BRRRR, and pre-pandemic flipping activity is coming online. Basically, investors were already upgrading units in these cities, and these renovated, higher-priced units are being listed because landlords don’t have the option to stick with current tenants. Existing units, meanwhile, aren’t turning over—as demonstrated by falling inventories.
Data shows that brunt of the economic pain is felt by lower-income people. This could cause landlords to work harder to keep tenants in lower-priced units but continue to market and raise prices on higher-price units.

The worst performing markets

Luckily, the YoY numbers for our lowest-performing markets are far less dramatic than our top performing markets (only a 16% decrease for Lubbock, as opposed to a 45% increase for St. Louis.

It’s also notable that the YoY listing in these markets are much higher, on average, than those on our top-performing list. I imagine that listings are staying on the market for longer due to the economic uncertainty, driving the total listing volume up and encouraging landlords to drop prices.

Comeback markets

Lastly, I wanted to call out three markets that have been struggling but are showing signs of recovery over the last several months.

Arlington, TX; Doral, FL; and Jersey City all have negative YTD numbers—but have had positive growth since May. While these markets are still down YoY, the positive momentum over the past couple of months is encouraging. It should warrant further study by investors looking for opportunities to buy low and capitalize on the rebound.

During this weird and unpredictable year, it can be hard to keep up with rapidly changing market dynamics. The best I think we can do is to present the data—and let the smart investors here on BiggerPockets determine what to do with it.

Remember, this is just my opinion. I look at a lot of data and read a lot about the economy, so I like to think my opinion is informed. But please remember that it’s your job, as the investor, to dig into the data, learn the markets, and make your own informed decisions.

I’d love to hear what you think is going on in these markets. Are there any investors out there with intimate knowledge of these markets that could help shed some light for the rest of us?

Tell us in the comments below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.