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The combination of skyrocketing home prices and a surge in remote work that began during the COVID-19 pandemic has given the US rental market a major facelift as many American renters pack up and move to cheaper markets.
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According to a new report by TransUnion, out-of-state applicants for rental properties increased by 42% between 2020 and 2021. During the same period, rental applications in rural areas increased by 28%, while the volume of rental applications in cities increased by just 10%. Rising housing costs and a sharp rise in remote work were probably the biggest contributors to these shifts.
Cross-state migration patterns show that more people (and renters) are leaving the Rust Belt and Northeast for the South Atlantic and Mountain States, as well as Arizona and Texas.
Overall rental occupancy in the US hit a record 98% in January 2022. The rise was due in part to an influx of Americans who sold their homes while home prices were at an all-time high and then chose to rent until valuations plummet again.
An analysis of 2020-2021 rental applications found that the number of applicants who sold their homes increased by 37% in the past year and the number of applicants with an outstanding mortgage increased by 16%.
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Similar to the housing market, the US rental market has been constrained by a lack of supply, with new units lagging behind demand due to supply chain blockages, high material costs and an ongoing labor shortage. This contributed to a 14% increase in average rental prices between 2020 and 2021.
At the same time, the median income of applicants increased by only 6% from 2020 to 2021, leading to an increase in rent arrears. On-time rent payments fell from 96% in January 2020 to 92% at the end of 2021.
“While conditions have been exacerbated by migration patterns over the past two years, the rental market is already grappling with a shortage of supply prior to the pandemic,” Maitri Johnson, vice president of tenant and employment verification at TransUnion, said in an email to GOBankingRates Expression.
Though building permits are at their highest in many years, supply chain issues have impacted new inventory, she added.
“This is one of the reasons the build to rent asset class is beginning to emerge as a timely alternative/solution to adding inventory in stressed market conditions,” Johnson said.
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In the meantime, immigrants should help boost the rental market well into the future. More than 80% of immigrants who have lived in the US for five years or less are renters, TransUnion reported, citing data from the US Census Bureau and Harvard University’s Joint Centers for Housing Studies. Even after five years, the majority of immigrants are still renting, including 70% of those who have lived in the US for five to 10 years and 57% of those who have lived in the US for 10 to 20 years.
“As people who immigrate to the United States tend to stay renters for long periods of time, this continued increase is likely to increase,” Johnson said in a statement. “Current demand stemming from the housing market may ease if property prices fall, but this demographic is likely to keep rental demand high for decades to come.”
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