Urban Rent Slowdown May Signal Renters are Edging Toward the Suburbs

Rhea-AI Summary

Following the early impact of the coronavirus pandemic, the for-sale market has rebounded, but rent growth has significantly slowed, especially in urban areas. Zillow's data indicates that from February to June 2020, annual rent growth in urban areas dropped by two percentage points, while suburban areas saw a 1.4 percentage point decline. Many renters have been financially impacted by unemployment and are moving back home, affecting rental demand. Notably, urban rent growth is stronger in some markets, such as Kansas City and Detroit, while others like Dallas-Fort Worth saw urban decline.

Positive

• Some urban rent growth remains stable in cities like Kansas City and Detroit.
• Survey results show renters are considering relocation due to remote work trends.

Negative

• Urban rent growth has slowed significantly since February 2020, with a 2% decline in urban areas.
• High unemployment rates disproportionately affect renters, leading to reduced demand for rentals.
• Major urban markets like Dallas-Fort Worth and San Francisco are experiencing significant rent growth declines.

SEATTLE, Aug. 3, 2020 /PRNewswire/ -- 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, 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 studiedⁱ. 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. 

Metropolitan Area*	YoY Rent Growth - Urban Areas (June 2020)	Slowdown Since Feb. in Urban Areas (Percentage Point Difference)	YoY Rent Growth - Suburban Areas (June 2020)	Slowdown Since Feb. in Suburban Areas (Percentage Point Difference)	Difference in Slowdown Between Urban and Suburban Areas (Percentage Point Difference)
United States	1.6%	-2.0%	2.4%	-1.4%	-0.6%
New York, NY	0.1%	-3.8%	2.0%	-1.3%	-2.5%
Los Angeles-Long Beach-Anaheim, CA	1.2%	-2.5%	1.2%	-2.1%	-0.4%
Chicago, IL	1.4%	-1.3%	1.3%	-1.7%	0.4%
Dallas-Fort Worth, TX	0.0%	-3.7%	2.5%	-0.5%	-3.2%
Philadelphia, PA	2.2%	0.1%	1.8%	-1.1%	1.2%
Houston, TX	0.0%	-1.9%	0.4%	-0.9%	-1.0%
Washington, DC	-0.1%	-3.0%	1.0%	-1.8%	-1.3%
Miami-Fort Lauderdale, FL	1.8%	-0.9%	2.3%	-0.9%	0.0%
Atlanta, GA	-0.5%	-2.0%	4.2%	0.0%	-2.0%
Boston, MA	N/A	N/A	N/A	N/A	N/A
San Francisco, CA	-2.2%	-3.9%	0.8%	-1.3%	-2.7%
Detroit, MI	4.4%	1.4%	2.0%	-0.8%	2.2%
Riverside, CA	4.9%	1.0%	3.8%	-0.8%	1.8%
Phoenix, AZ	6.3%	-3.2%	6.0%	-2.8%	-0.4%
Seattle, WA	1.9%	-4.3%	2.0%	-3.4%	-1.0%
Minneapolis-St Paul, MN	2.3%	-1.5%	1.7%	-2.3%	0.7%
San Diego, CA	2.8%	-1.9%	1.5%	-2.2%	0.4%
St. Louis, MO	4.2%	0.8%	3.2%	-0.9%	1.7%
Tampa, FL	2.2%	-2.1%	3.7%	-0.9%	-1.2%
Baltimore, MD	1.4%	-0.2%	0.5%	-2.3%	2.1%
Denver, CO	0.5%	-3.3%	0.8%	-2.6%	-0.7%
Pittsburgh, PA	1.6%	-3.8%	-1.6%	-2.4%	-1.5%
Portland, OR	2.3%	-1.1%	2.6%	-1.9%	0.8%
Charlotte, NC	3.4%	-0.7%	3.0%	-1.6%	0.9%
Sacramento, CA	3.5%	-2.7%	3.8%	0.3%	-3.0%
San Antonio, TX	1.5%	-2.0%	1.9%	-1.3%	-0.7%
Orlando, FL	0.4%	-3.6%	1.5%	-2.4%	-1.2%
Cincinnati, OH	4.2%	-0.8%	3.0%	-1.8%	1.0%
Cleveland, OH	4.9%	1.7%	2.8%	0.1%	1.7%
Kansas City, MO	3.7%	1.2%	2.5%	-1.2%	2.4%
Las Vegas, NV	2.4%	-3.9%	2.0%	-3.4%	-0.4%
Columbus, OH	3.8%	0.2%	2.9%	0.1%	0.1%
Indianapolis, IN	5.4%	-1.0%	3.6%	-0.7%	-0.3%
San Jose, CA	-0.9%	-4.2%	-0.7%	-3.8%	-0.4%
Austin, TX	-0.1%	-3.2%	1.8%	-2.8%	-0.4%

*Table ordered by market size

About Zillow
Zillow, the top real estate website in the U.S., is building an on-demand real estate experience. Whether selling, buying, renting or financing, customers can turn to Zillow's businesses to find and get into their next home with speed, certainty and ease.

In addition to for-sale and rental listings, Zillow Offers buys and sells homes directly in dozens of markets across the country, allowing sellers control over their timeline. Zillow Home Loans, our affiliate lender, provides our customers with an easy option to get pre-approved and secure financing for their next home purchase.

Millions of people visit Zillow Group sites every month to start their home search, and now they can rely on Zillow to help them finish it — with the same confidence, ease and empowerment they've come to expect from real estate's most trusted brand.

Zillow is owned and operated by Zillow Group, Inc. (NASDAQ:Z and ZG).

ⁱ Zillow analyzed the 35 largest U.S. metro areas, 34 of which data was available for. This split was present in 19 of these 34 metros.

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SOURCE Zillow

FAQ

What is the current trend in urban vs suburban rent growth as of June 2020 for ZG,Z?

As of June 2020, urban rent growth has declined by 2%, while suburban rent growth has decreased by 1.4%, indicating a shift in renter preferences.

How has the coronavirus pandemic impacted rent prices for ZG,Z?

The pandemic has caused a slowdown in rent growth, particularly in urban areas, due to increased unemployment and financial strain on renters.

Which metropolitan areas are seeing the largest declines in urban rent growth for ZG,Z?

Cities like Dallas-Fort Worth and San Francisco are experiencing significant declines in urban rent growth, highlighting a broader trend.

Has remote work influenced rental market preferences according to ZG,Z data?

Yes, survey results suggest that many renters reconsider their housing options due to the increase in remote work caused by the pandemic.

What percentage points reflect the slowdown in urban rent growth since February 2020 for ZG,Z?

The slowdown in urban rent growth since February 2020 is 2 percentage points.