Rents actually went down a bit during the pandemic, but a new report from real estate marketplace Zillow suggests that this break for renters is coming to an end.
In 2021, Zillow says it expects the largest increase in rents since 2005 -- at the height of the housing bubble.
Late this year, rents began to rebound, largely based on rising home values. The typical rent was up 1.1 percent year-over-year in November to $1,734. Among the 100 largest markets, monthly rent growth was highest in Stamford, Conn; Providence, R.I.; and Ogden, Utah -- which grew between 2.1 percent and 3.1 percent.
For the most part, rents in November were roughly where they were at the beginning of 2020 as more people -- members of Generation Z especially -- began looking for new places to live. Zillow expects that trend to gain momentum in 2021.
"With a vaccine on the horizon and Gen Z continuing to graduate from college, we expect the cloud of uncertainty surrounding the pandemic to lift and demand for rental units to surge in 2021," said Zillow senior economist Chris Glynn.
Glynn says the anticipated rebound in rents may be good news for landlords, but it comes at a bad time for millions of renters who were hit hard by pandemic-related income loss, putting them in an even more tenuous position.
“Further government intervention will likely be needed to avoid a painful wave of evictions," Glynn concludes.
Supply and demand are obviously one factor that is pushing up rents, but the Zillow report says rising home values are also a big contributing factor. Zillow's typical home value rose 1.1 percent from October to November and 3 percent over the past three months -- both of which are the largest gains on record going back to 1996.
Home values are up 7.5 percent since last year to $263,351, with the largest annual increases by metro in San Jose, Phoenix, and Seattle -- all posting double-digit increases.
Record low inventory
In a perfectly balanced market, the rapid increase in home values would lead to increases in construction, including apartments. But new construction has been slow to add to housing inventory, which continued to drop to record lows this year.
"We expect the housing market to continue its bull run from this summer and fall well into 2021," said Zillow senior economist Jeff Tucker. "This rapid price growth will be driven by the same factors that took the steering wheel in 2020: strong demographic trends, shifts in buyer preferences sparked by the pandemic, low mortgage rates, and short supply.”
Millennials, now in their mid-30s, can be expected to continue moving out of apartments and purchasing homes. But Tucker says that might bring little relief to the rental market as it continues to drive up property values in 2021.