Rents Are Returning To Pre-Pandemic Levels - Except In Big Cities

Reasons may vary but it could be that bigger cities have more large companies, especially in tech and media, that can afford to sustain remote or hybrid work while in the rest of the US, there is more pressure to return to the office and also more employee comfort in doing so. JL

Marie Patino reports in CityLab:

In San Francisco, actual June 2021 rents are still 16.2% lower than their pre-pandemic projections. The same pattern can be observed across 21 of the largest and most expensive U.S. housing markets, among them New York City, Washington, D.C., Boston and Seattle. (But) in the majority of U.S. cities analyzed — 53 out of 83 — real rent prices are now similar to their calculated pre-pandemic projections.

As the first Covid-19 lockdowns began in the U.S. last year, the cost to rent a place in San Francisco began plunging. By December,  prices were down 35% year over year as those able to work remotely moved to smaller cities and suburbs nearby.

Even more than a year later, the gap in the city between actual rent prices and pre-pandemic projected rent prices — representing what prices would look like if they had followed their historical course — remains the highest in the country, according to new research published by real estate aggregator Apartment List. In San Francisco, actual June 2021 rents are still 16.2% lower than their pre-pandemic projections. The same pattern can be observed across 21 of the largest and most expensive U.S. housing markets, among them New York City, Washington, D.C., Boston and Seattle.

Nationwide though, the trend looks different: The gap between actual and projected prices closed for the first time in May, according to Rob Warnock, Apartment List senior researcher and author of the research. “May 2021 is the first month where rent prices caught back up with expectations,” Warnock says in the report. The national median rent price was  $1,189, just above the projected price of $1,185. And this month, the trend was further confirmed.

Warnock calculates pre-pandemic projected prices by using historical rent data, and assuming that, if the pandemic hadn’t happened, prices would have continued evolving the same way they did prior to it. The result gauges how fast cities are going back to pre-Covid numbers after almost all of them experienced “pandemic pricing,” defined by Apartment List as rent prices falling 1% or more below seasonal projections any time between April and December 2020.

 

How cities experienced pandemic pricing varies, and so does the pace at which they’re returning to pre-pandemic estimates. 

After decreasing in 2020, rent prices rebounded nationwide during the start of 2021, said Warnock. In the majority of U.S. cities analyzed — 53 out of 83 — real rent prices are now similar to their calculated pre-pandemic projections. That’s the case in Atlanta, for example, as well as Sacramento, California, and Indianapolis, Indiana. And of the 21 cities that still have lower rents, three cities have now almost closed the gap between real rent prices and projected ones.

The report identifies a third bucket of nine cities that didn’t experience pandemic pricing at all. Among them are Tucson, Arizona, and Tulsa, Oklahoma. “Vacancy rates are a major clue in understanding why some cities experienced big price drops and others did not,” Warnock wrote in an email. In San Francisco or Boston, vacancies rose fast in 2020, leading to a drop in prices. “Tulsa and Tucson, however, never saw this vacancy spike, and therefore never saw a large drop in rent prices even during the worst of the pandemic,” Warnock continued. “And in 2021, vacancies are tightening and fueling especially fast rent price growth.