Shut-Out Homebuyers Turn to Rentals, Sending Prices Up

Rents for new leases on apartments have grown at the fastest pace in more than a decade, as buyers shut out of the hot housing market turned to rentals.

Home prices have been climbing all year as strong demand, fueled by low interest rates and yearnings for more space during the pandemic, outstripped supply. While the market has calmed somewhat lately, the median sales price of a new house in July was a record $390,500, up from $370,200 the prior month, likely pushing some buyers out of the homebuying market and sending them to rentals.

As a result, apartment occupancy rates have tightened to a record 96.9% as of July and pushed up rental prices. Rents on new leases for individual apartments are increasing at the fastest clip in more than a decade, as the chart below shows:

“The incredible momentum is happening just about everywhere, as 35 of the country’s 50 largest metros saw new lease trade-out hit the highest ever mark in May 2021,” wrote Carl Whitaker, market analyst at rental technology provider RealPage, in a July research report. 

Though demand is expected to remain strong, RealPage believes rent growth will moderate next year.

“We’re likely peaking now at rent growth,” said Jay Parsons, the company’s deputy chief economist, in an email. “What we saw in single-family sales is, the market went from ‘really, really hot’ to now just ‘hot,’ and we expect a similar pattern to unfold with rental housing. Rents aren’t going to crater, but they’re also unlikely to continue growing at this rate.” 

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