While the for-sale market has shaken off the early impact of the coronavirus pandemic and resumed its torrid pre-pandemic pace, rent growth hit the brakes this spring.
Rent prices in urban areas have slowed more than those in suburban areas, new Zillow data shows, a possible signal that renters' preferred location is tilting toward the suburbs.
Rents were chugging along at a stable pace into the early part of this year, but the spike in unemployment has hit renters more severely than homeowners, and millions have moved back in with parents or grandparents, impacting demand for rentals. That's caused the rate of rent growth to slow from February to June.
During that period, rent price growth has slowed more in urban ZIP codes than in the suburbs - annual rent growth has slowed two percentage points in urban areas, compared to 1.4 percentage points in suburban areas. That is a subtle split, but it goes against the trend seen just before COVID-19 hit the U.S., indicating the shift was influenced by the pandemic. Urban and suburban renters alike are missing rent payments or have moved home during the pandemic to a similar degree, but typically less expensive suburban rentals may now be more appealing for those who no longer need to commute or are temporarily unable to enjoy some of the amenities of urban living.
Renters usually have more flexibility than homeowners given their relatively short lease terms, and rent prices are often quicker to move as a result. Zillow search traffic data does not yet show home shoppers are more interested in suburban homes than in past years, and both areas are seeing similar home-value growth, time on market, sales above list price and rate of newly pending sales. Survey results, however, indicate working remotely is causing many to reconsider their options. If this early shift in the rental market is indicative of a more widespread change in preferences, similar changes to the for-sale market could follow, but the economic impact on renters may be playing a larger role.
"It's important to separate how much of the trend we are seeing comes from shifting tastes as opposed to the economic reality that renters face," says Zillow economist Joshua Clark. "It may be tempting to conclude that urban renters who have been cooped up without outdoor space and unable to visit their favorite local bar are ready to commit to suburban life, and that is likely true for many. But that narrative ignores the job loss that has hit renters, who are disproportionately employed in the industries most affected, and has likely played a bigger role in recent moves."
This split between urban and suburban rent growth was present in more than half of large U.S. metros studied. The biggest gaps were in Dallas-Fort Worth, Sacramento, San Francisco and the greater New York metro.
Not all markets are following this pattern. Urban rent growth has been stronger than suburban growth in some metros, and that difference is biggest in Kansas City, Detroit, Baltimore, Riverside and St. Louis. Rents in both urban and suburban areas of Kansas City are accelerating, but urban rents are to a greater degree. Baltimore rent growth was softening before the pandemic, and has continued on that trajectory.