The Great Dislocation: Three Major Trends in the Rental Market due to Covid 19

Welcome to the Great Dislocation.

No matter where you live, your area is seeing an enormous, unprecedented amount of movement of people and families as we all adjust to the new normal that COVID-19 has thrust upon us. For most of us, that means watching friends and family relocate to places that better meet their needs, either temporarily or, potentially, for the long term.

This mass movement in combination with low interest rates is driving up home prices across the nation (The Wall Street Journal). Despite the activity in home buying more people in the United States are renting than ever before (Pew Research). For us here at Dwellsy, we have the benefit of a national platform and more rental listings than any other site on the internet, so we’re watching patterns both nationally and locally. Here’s the three major trends we’re seeing in the rental market.

1. The Most Expensive Urban Core Markets are Seeing a Decline.

The national picture starts in the most expensive markets, like NYC and SF. Put simply, there are huge rent drops in those markets, and many landlords are having real challenges renting units at any price. These rent drops are as much as 31% in San Francisco (SF Chronicle) and 12% in the NY Metro Area (The Real Deal).

What is not transparent in these numbers is that these rent drops are happening even as supply shrinks. I hear daily from landlords that they are holding apartments off the market to avoid locking in lower rents. But, still the rents drop.

Also, a close look shows you that landlords are aggressively offering concessions. According to Chris Stafford, a renter in San Francisco that we interviewed in a recent Rent Matters episode, there are “crazy incentives…up to 2–3 months’ free rent, free parking for six months, cash bonuses, tickets to concerts.” They’re doing this to keep the basis high in the hope that we’ll have a return to normal pricing when the leases end and renewal happens. As you can imagine, these kinds of concessions are the most common at the top of the market and become less available as prices drop.

Why are these cities being uniquely impacted? Prior to COVID-19, these two cities were amongst the most vibrant and expensive in the country. Under the restrictions we now all live with, much of that city life is gone. Amazing arts scene? Closed. Wonderful restaurants? Delivery only. Plus, the dense urban experience, which for many has been so exhilarating, has become a reason to move away, rather than an attraction.

2. People are trading to meet the needs of changing lifestyles

Downtown cores and formerly hot transit corridors in the most expensive markets are emptying out, but where are those folks going? Some are staying in the same overall cities, but trading to meet new and different goals.

Many are working from home and need more space for a home office. Others are teaching kids at home and need space for homeschool setups. Or, they have family members moving in and need space to accommodate larger households. Or all three.

Others are sick of crowded elevators or passing neighbors in nerve-wracking narrow common hallways. Above all, these folks want a personal entrance to their home, without having to pass through a common space to get it.

And the holy grail for many? Private outdoor space. The suburban backyard has become an oasis, a trend that stands in stark contrast to the move toward the cities and densification for so long. Some are even pushing further out than that — out to exurbs or to a full country lifestyle.

The implication here is that even in those most expensive markets, the suburbs and exurbs tell a very different story than the cities. Many of them boast strong and healthy rental markets and prices flat or even increasing — especially for renting single family homes (SFR). A leader at Invitation Homes, the nation’s largest single family home landlord, recently told me that they’re “so overwhelmed by demand for [their] properties that they’re struggling to respond to inquiries.”

3. Secondary Markets are Winning

Folks from those dense and expensive markets aren’t just moving to the suburbs. San Francisco 49ers fans are moving to Boise and Denver. Lovers of NYC theatre are moving to Florida, New England, Florida, Upstate New York and, did I mention — Florida?

Sometimes these moves are driven by weather, cost or other location-specific factors that make a destination appealing for what may be regarded as a short stay. Often folks are returning to their place of origin, either to live with or near parents.

That means that the markets in many secondary and even tertiary cities like Rochester, NY, Durham, NC and Austin, TX are healthy or even thriving. Trying to find a rental home in certain suburbs of Denver, I’m told, is brutally challenging today, with multiple bidders and homes being rented in hours or days. An apartment investor I spoke to recently has been getting multiple unsolicited bids to purchase his Kansas City apartment complex — at prices in excess of what he saw before COVID. And, according to Laura, a renter I recently interviewed, “prices in Kansas City are definitely higher than they were before COVID.”

Not that these markets don’t have their own version of the Great Dislocation — virtually all of them are seeing some of the similar trends we’re seeing in those most expensive cities. But, in contrast to SF and NYC, secondary cities have both an influx of new people and internal dislocation, so the net effect is bringing changes within those cities, but not the huge decrease in rents that the most dense and expensive urban centers are seeing.

So, what’s next for the balance of 2020 and into 2021?

• Will this level of activity in the housing market continue or decline?
• Will the decline in luxury market help increase inventory for the middle of the market?
• Will we continue to see an increase in households renting to keep options open in this volatile time or will more households buy in an effort to find security?

Like all things this year, I expect unpredictability above all else. I’ll keep updating here on what I’m hearing and seeing in the market in the months to come, so check back frequently for updates, and if you want a first-hand perspective from renters, subscribe to my podcast Rent Matters to hear the voice of renters during this changing times.

For inquiries please contact info@Dwellsy.com

About Dwellsy

Dwellsy is a comprehensive residential home rentals marketplace based on the radical concept that true, organic search in a free eco-system creates more value than the pay-to-play model embraced by all of the current rental listing services. Indeed, while barely more than a year old, Dwellsy has more residential rental listings than any of the major listing sites — as well as the most diverse set of listings — including both affordable and higher-end properties. Dwellsy’s entirely different approach to residential rental listings focuses on presenting houses and apartments based on features renters need and want — not based on how much landlords pay to show their listings.