They are usually reserved for homebuyers, but bidding wars are becoming more common in the rental home market. Demand for apartment and single-family rentals is surging and outpacing supply.
As the economy improves, workers are moving out of shared living situations and looking for their own homes. In addition, the housing market is so expensive right now that many would-be buyers are being priced out. That has them looking for rentals.
Some landlords are seeing more than a dozen applications for good properties – and renters offering well above the asking rent.
“We’ve been leasing property for almost 20 years, and we haven’t seen an applicant pool this competitive since we’ve started,” said Vipin Motwani, managing principal at Iron Gate Development in Maryland.
Motwani listed a Clinton, Maryland, home two weeks ago and had 20 prospective tenants go through it. He then received 10 applications, far more than normal. Given the stiff competition, renter profiles are now changing as well. Meaning, they have more money and better credit histories.
“The rental applications that we’re getting right now, you’re seeing higher credit scores, you’re seeing applicants willing to put down more in terms of the security deposit, you’re seeing strong rental history as well. That wasn’t necessarily the case pre-Covid,” Motwani said.
Matt Van Slyke moved to New York City this weekend to start a new job. He toured about 15 apartments in two days after searching on apps like StreetEasy. He saw prices of the units he was looking at going up to $300 to $400 just over the last two to three months.
“The one that I really wanted to apply to I was looking at with three or four other people in the tour. Before I got home, I immediately got my information together, applied, and it had already had applications put in,” he said.
He didn’t get it. And it was the one he really wanted.
Van Slyke then tried for another one that already had multiple applications and lost out on that one as well. He eventually settled for something pricier than he would have liked, a studio in Manhattan’s East Village, he said, since he felt a “time crunch” because of his job and “it just seemed like everything else was flying off the shelves.”
The rental applications that we’re getting right now, you’re seeing higher credit scores, you’re seeing applicants willing to put down more in terms of security deposit, you’re seeing strong rental history as well. That wasn’t necessarily the case pre-Covid. Vipin Motwani managing principal with Iron Gate Development
The intensifying competition is driving rents higher at a strong pace.
In July, rents nationally rose 7% year over year for one-bedroom apartments and 8.7% for two-bedroom apartments. That is up from 5% and 6.5% annual gains in June, according to Zumper, a national rental listing platform.
Some markets are seeing more demand than others. In the spring of this year, New York City saw its rent applications double compared with 2020, San Francisco saw a 79% increase in prospective renters, and Seattle experienced a 55% jump, according to RentCafe, a rental listing website. Meanwhile, Boston saw only a 5% gain, while rent applications rose 8% in Charlotte, North Carolina, and 9% in Portland, Oregon.
For single-family rental homes, the latest read from Corelogic in May showed rents up 6.6% year over year, which is nearly four times the annual increase seen in May 2020.
“Strong job and income growth, as well as fierce competition for for-sale housing, is fueling demand for single-family rentals,” Molly Boesel, principal economist at CoreLogic, said in a release. Boesel said she expects these factors to continue to drive the market this year, especially in and around cities and technology hubs as people start to return to offices.
Single-family rental REITs, namely Invitation Homes and American Homes 4 Rent, have been reaping the rewards, beating estimates in their latest earnings releases on strong occupancy and revenue.
Rental demand pushed American Homes 4 Rent’s results beyond expectations, CEO David Singelyn said in a recent call with analysts.
“Today, the national housing shortage sits at more than 4 million homes,” he said. This coupled with our single-family rental value proposition provides the backdrop for continued long-term rental demand growth.
Apartment REIT stocks are also seeing big gains. Names like Avalon Bay, UDR, and Essex Property Trust are all up over 30% year to date. The flight from urban areas is reversing. Occupancy and rents for city properties are rising.
The coronavirus pandemic eviction moratorium recently extended, is also playing into the supply situation. As some landlords are unable to evict tenants who aren’t paying, they have less supply to offer those who can pay. To offset losses, some are raising rents on the properties they can, knowing that demand in the market will support the increases.
Motwani has had several tenants unable to pay and said he has lost about $30,000 so far during the pandemic.
“The eviction moratorium has caused hardship for landlords, that coupled with the fact that the Rental Assistance Program has not actually kicked in, in the fashion that it was normally intended to has really caused a squeeze on both renters and their landlords,” said Motwani.
Randolph is a Multifamily Investment Sales Broker with eXp Commercial servicing Multifamily Buyers and Sellers in the Greater Chicago Area.