It’s a good time to rent in the United States, but maybe for the wrong reasons. Thirty-year mortgage rates are hovering around 7%, housing costs are at record highs, and general inflationary pressures on spending budgets have placed ownership out of reach for many.
Buying a house in the United States is now considerably more expensive than renting, according to a recent analysis from CBRE. The analysis shows the average monthly payment on a new U.S. apartment lease is $2,165, while the average monthly payment on a mortgage for a new home is $2,997. The gap will continue to be an obstacle for aspiring homeowners for at least five years, the analysis found.
Renters in the U.S. will also likely be impacted by the recent National Association of Realtors (NAR) proposed settlement. As of 17 August, the changes agreed to in the preliminary settlement between NAR and various plaintiffs will go into effect, pending final judicial approval in November.
While the NAR proposed settlement does not directly focus on the impact on renters, many states, brokerages, and MLS affiliates are adopting renter agent representation agreements, similar to buyer representation agreements. This will allow renters to make informed decisions and understand their commission/representation payment obligations, if any, when they agree to have a real estate brokerage work on their behalf.
Destination service providers (DSPs) are working to implement communications and processes to support renters in this environment of expanded disclosure and documentation. Industry experts encourage RMCs and corporate clients to consult their own real estate attorneys for further guidance in navigating the potential impacts on renters. Additional information is also available in a July 2024 WERC article and proposed settlement FAQs from NAR.
Good News on Supply
A report from PorchLight Rental & Destination Services, meanwhile, indicates that 2024 will be the strongest year for new apartment construction in decades, giving renters more options and better opportunities to negotiate price and lease terms. Expected year-over-year rent growth will slowly rise, but not above the low single digits, the report stated. The report also found that hybrid work is here to stay, driving demand for rentals that provide spaces and amenities that blend work and home life for today’s flexible workforce.
“For the first time since the 1980s, the U.S. rental market realized an unprecedented level of new apartment supply, reaching its highest point in four decades,” says Diane Ayres, president and CEO of PorchLight Rental & Destination Services. “The new supply brings some relief to renters, who were experiencing double digit rent increases from 2020 to 2022 to a more ‘normalized’ 1.3% rent increase, depending on property type and location.”
Maura Carey, SCRP, vice president of content and research at Dwellworks LLC, notes that the demand-driven spikes from 2022 are behind us. “With millions of newly constructed units coming to market (in some cities oversupplying the market), the rates of increase in base rent have slowed down considerably,” she says.
In some markets, like Phoenix, Las Vegas, and Nashville, landlords are even offering incentives and concessions, though high-volume relocation markets like New York City and Boston still see more demand than supply, with prices that reflect a market where landlords still have the upper hand.
How Are Things Looking in Canada?
In Canada, limited availability is causing housing and rental prices to rise. In November 2023, Canadian rents were 9.9% higher year-on-year, pushing prices out of the affordability levels of many low- and middle-income households. A look at the 10-year house price-to-income ratio shows that in both Canada and the United States, the 10-year ratio sits around 50%, meaning that housing prices have grown 1.5 times income.
The national vacancy rate of apartment buildings in Canada fell to a new low of 1.5% by October of last year, less than half its level from just two years before, representing the tightest market since at least 1988, according to a recent report by the Canada Mortgage & Housing Corp. The average monthly rent for a two-bedroom unit surged a record 8%, to C$1,359 (US$1,016), the report found. The report showed a 1.7% increase in rental supply in 2023, not nearly enough to keep up with demand, including from 1.2 million new arrivals to Canada last year. The resulting growth in prices outpaced that of wages.
“Canada’s immigration policies support the country’s growing need for talent, but in general, Canada also has more regulatory controls on its rental market practices than in the U.S., which can be a disincentive to new development/investment,” Carey says. She adds, “With new arrivals plus so many existing tenants choosing not to move and risk increases in their rent, the available options can be limited. Where the U.S. national vacancy rate is at 6.6%, the vacancy rate in Canada’s key employment markets, like Vancouver and Toronto, has remained below 2%.”
Is Mexico Faring Differently?
The cost to rent homes and apartments in Mexico has likewise increased significantly, by more than 28% since early 2020, driven in part by an influx of remote workers since the pandemic. While rental prices in other locations have increased by 7-8% annually since the pandemic, Mexico City has seen a 14% increase. In the capital city, the rent for a high-end home in an upscale neighborhood can be upwards of 50,000 Mexican pesos (US$2,794) per month, and for an apartment, more than 40,000 pesos (US$2,235) per month.
Foreigners, particularly from the United States, have flocked to Mexico City on digital nomad visas. “Mexico has become a key ‘global nomad’ destination and has also enjoyed economic growth driven by nearshoring, as U.S. companies manage their supply chain risk by balancing investments in Asia with those in nearby Mexico,” Carey says. “As a result of expanded demand, rental listings in Mexico City’s highly desirable, expat-friendly neighborhoods like Roma, Polanco, and Condesa move quickly and at monthly rental rates comparable to other major urban centers globally.”
What Are Renters Looking for?
Renters have less flexibility with rental budgets, Ayres says. Although most want larger living environments like a second bedroom to accommodate work-at-home space, they will forgo it to keep their rental budget lower, she says. Other common preferences she has observed include:
- Safe, desirable areas
- Newer or updated properties with washer and dryer included
- Easy access to conveniences
- Family friendly or a place where they would feel comfortable walking their pets later in the evening
The Impact of Prices on Client Expectations
According to Carey, regional volatility in rental prices has created a need for frequent updates on market conditions. “The job of all of us ‘on the ground’ is to provide feedback early and often, letting clients know realistic budget parameters, as well as advising would-be renters to have realistic expectations in their requirements,” she says. For example, many online listings may actually be already-rented options, shared to gain renter interest and not necessarily for immediate move-in.
Carey advises renters to come prepared with complete and well-documented application materials for active listings. “Relocation renters are often interested in very choice markets and properties and are competing against local renters, so being prepared with current financial and employment data, as well as renter history, is key,” she says.
Where Experts Can Help, No Matter the Market
In any market conditions, clients benefit from professional rental finding assistance. In current market conditions, Ayres says, if potential tenants have any nuances such as multiple pets or a credit blemish, it makes the rental search experience more difficult. “Keeping this in mind as employers develop policy support is important, considering over 60% of corporate transferees are renters,” Ayres says.
Carey says that relocating professionals tend to be higher wage earners with an interest in very popular, upscale neighborhoods and upgraded properties. “A quick look at the headlines or a web search for rental listings in New York City might suggest there is greater availability and at lower price points than is actually the case for neighborhoods of highest interest,” she says. “That said, there are always options out there, and local expertise is a great help to employees and families new to the city, oftentimes new to the country, in finding well-matched solutions.”