Rental Markets and COVID-19: How Current Conditions Affect U.S. Renters

As we take stock in the real estate market, it's worth noting some of the unique characteristics of rental price trends.

Analyzing rental trends versus home sales can often be like comparing apples to oranges; they're similar in many ways but also vastly different in others. Often, when we take a look at home prices and rents, they generally look like they move in tandem. As seen below in an example from Orange County, Calif., at first glance it appears that the two are on the same trajectory, which is a fair assessment. However, upon closer examination, there are often larger divergences between the two in short-term bursts.

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For example, we see that the difference in median price between these figures took a sharp turn during the height of the last housing bubble and subsequent economic recession. While the median rental price has held fairly steadily in the intervening years, sales prices are much more volatile, with more pronounced peaks and valleys in reaction to larger market forces.

As the COVID-19 pandemic has exacerbated certain trends in the real estate market - including low inventory and record low interest rates - median home prices in Orange County have steadily increased throughout this year after a small dip in Q2. The median price is now sitting at $880K, a full $100K increase year-over-year from the same time in 2019. Similarly, rental prices over the same timespan have also steadily increased - renters there are paying a median amount of $3,850 monthly, compared with $3,600 in Q4 2019.

We can also take a look at differences in rent prices between single family homes (SFH) and condos. In King County, Wash., where Seattle is located, we see some expected trends play out. In searching for more space and fewer people during a pandemic which is believed to be mostly airborne, Americans are increasingly migrating away from crowded city centers, and especially multifamily housing in these areas. This means that condo rents have dropped over the course of this year in King County: at the beginning of the year, a condo was going for somewhere around $2,250 per month. Currently, renters are paying a median price of $2,050, which is a decrease of nearly 9% over the course of 2020.

It's also worth noting that King County was home of one of the first hotspots of coronavirus cases in the U.S. in March, which is when we see the large drop in condo prices on the below chart.

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All renters in the U.S. know that 'location, location, location' is a forceful factor behind their monthly payments. A two-bedroom condo in Manhattan will always be much more expensive than a similar unit in, say, Houston or Phoenix. However, one benefit of the pandemic for renters has been the closing of this rental price gap among major markets.

As seen in the below chart, though monthly rents in cities such as New York and San Francisco remain two- to four-times more expensive than smaller metro areas, they continue to track downward. The median New York City rent for a two-bedroom condo is down about 30% from the beginning of 2020: from $8K to $5,500 in just a few months.

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Meanwhile, we see smaller cities such as Charlotte, NC, hold a steadier median rental price: $1,300 in Q1 and $1,375 in Q4. In Houston, that figure has increased just $5 over the course of the year, going from $1,395 in Q1 to $1,400 in Q4.

All of these data points help us put together a more complete picture of the current U.S. housing market, which includes renters as well as homeowners. With unique insight into this information, Black Knight will continue to monitor and report on any changes and trends of note.

Using its Daily Home Price Flash, Black Knight's Collateral Analytics analyzes home sales and pricing information for major U.S. markets on a bimonthly basis and publishes its findings on this blog.