Year-Over-Year Rental Rates in 4 Metro Areas – What’s Next?
Updated August 7, 2020
* Article has been updated to reflect May - August 2020 rents
It’s not news that real estate is a business of flux.
People move – all the time! – or choose to rent a house instead of an apartment. Life circumstances call for downsizing or upsizing, and families for whom a duplex was once just fine now need their own detached home. Or vice versa. The only constant in real estate is change, which makes a perfect opportunity to put Rentometer’s rent evaluation tools to work.
We looked at rental markets across 4 main metropolitan areas of the United States:
The bar graphs below show the year-over-year rent movement in each market. For example, Chicago closed out 2019 with a median rental rate of $2,675 per month for a two-bedroom, 1 1/2 bathroom unit.
Starting in 2020, you would expect a slight increase in rent – which is what we see in January 2020. An investor could see Chicago as a good investment, with year-over-year average rates predicted to be higher for the first three months before leveling in April – a typical seasonal prediction.
Moving ahead, May’s average rent starts to trend down. And if you take a closer look at actual rents paid (the green line), rents held firm until May 1, 2020, after which the number takes a sharp dive.
Some observers may make the case that March and April were not great months because they showed only a slight uptick in rents. And with May’s drop, landlords and investors with models that banked on January rent levels start to worry about cash flow and how to pay the mortgage.
The big questions: How will May close? What’s in the cards for June?
Now that we are in the home stretch of June, we have that data, and as it looked for many other rental areas, the year over year rates for May and June declined to under 2019 rates. The actual paid in May lost another $20 on the monthly rent paid while June took the worst and hit another $147 from May.
* The year-over-year for July is a full $111 less in 2020 than in 2019. Compared to June, July fell on the trending year-over-year by $56. It could be a tough summer in Chicago.
Let’s look at patterns in other metro areas.
At the end of 2019, average rents in Los Angeles – for the benchmark two-bedroom, 1 ½ bath unit – were right around $3175 per month. Starting in January, rents edged up, $22 higher than December, and $75 more year-over-year. Not too bad. February rates jumped as predicted (blue and orange bars), and the data suggested higher-than-2019 rates would hold through May.
Going into March and April, rents take a sharp dive then tick up slightly in May. For an investor and landlord, this instability is problematic. While it’s great to see May on the positive side, will that hold for June? Los Angeles on the year over year is holding steady with June almost coming to a close. In the actual rental rates, the data says that June can be considered a comeback kid, slightly. The rental rate rose a little from the May decline.
* The July reports for L.A., show that the rental market is still moderately volatile. Compared to June, July still lost another $71 on a rent base, and on the year-over-year July is still down $50 from 2019. It may be a tougher recovery period for L.A.
In San Francisco, 2019 ended well. A benchmark unit rented for an average rate of $4,851 per month. All indicators pointed to even higher year-over-year rates going into 2020. This pattern is holding; San Francisco shows up as a crazy anomaly amidst falling rates in the rest of the country. Rents rose steadily in February and showed a massive spike in March.
Even with April rents down slightly, year-over-year levels still rose above 2019. While May rental rates are dropping, you can see these rates still almost dead even with year-end 2019. Overall, rates held their value for the first five months. Will June continue to trend down? May held positive on the year over year, but June started to decline and is now sitting at less than 2019 rates. In actual rental rates, both months took a huge hit. They were seated positive in April at $225 in growth, but May turned negative to -$14, and June is sitting at -$119.
* The July reports for San Francisco are very similar to Los Angelas. Comparing June and July, the market is still under $111, and on the year-over-year rents are down $227 from July 2019 to July 2020. Another volatile market in California and one to watch if you are an investor both for a possible deal as landlords may want to sell or work out plans with tenants to mitigate loss on your property.
The picture is clear – Washington, D.C. rents are not faring well so far in 2020.
January and February saw nice increases over 2019’s year-end rate of $2,910 per month for a benchmark two-bedroom unit. 2020 showed the predicted year-over-year improvements until May when rates dipped slightly negative. Actual rent amounts trended down for March, April, and May. Investors and landlords here will be watching to see if this trend continues or if the market will bounce back and even see rates that match those from December 2019.
On the year over year, the trend for May and June in Washington, D.C. does not look good, both hovering lower than the 2019 rates. And unfortunately, the data on actual looks even worse, with rents for May and June coming in at negative numbers.
* Washington, D.C., is seeing a nice comeback for July. The reports show that the month-to-month had an increase of $110 from June to July. This is excellent news as people start to become active in their work and communities again. The year-over-year for July is also encouraging as July is now neck and neck with a $3 difference from 2019 to 2020. We will watch to see if this is a predictor of things to come.
At Rentometer, we await the data. We’ll pull the same report for August to follow the path of changing rents.
Which metro areas would you like us to explore?
Get your data by running reports at www.rentometer.com.
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