Renters in San Francisco, San Jose, Seattle and Boston can rejoice. Those are the cities (and metro areas) where rents are falling the most, as of early 2021.
Renters in New Orleans, Sacramento, Rochester and Cleveland better start budgeting. Those are the cities where rents are rising the fastest in 2021.
These findings are based on a report published by Realtor.com in February 2021. Their report analyzed rental costs and trends for metropolitan areas all across the United States.
According to Danielle Hale, chief economist for Realtor.com:
“Although rents across the U.S. have been growing at a slower pace since the onset of COVID-19 … some markets are seeing rents grow by double digits. Many of the same factors that attract homebuyers to an area — highly rated schools, job opportunities, affordability and quality of life — attract renters.”
She went on to explain that the coronavirus pandemic has given a lot of renters the freedom to work remotely, which has led to a shift in rental demand and pricing all across the U.S.
Where Rents Are Rising Fastest in 2021
According to the Realtor.com report, rents are rising fastest in the metro areas of New Orleans, Sacramento, Rochester, Cleveland, Riverside, Indianapolis, Cincinnati, Memphis and St. Louis.
The list below shows the ten metro areas with the biggest increase in median rent prices, from January 2020 to January 2021. The percentage shows how much the median rose during that 12-month period.
Where rents rose the most:
- New Orleans-Metairie, La. $1,300 (+18.20%)
- Sacramento-Roseville-Arden, Calif. $1,649 (+11.00%)
- Rochester, N.Y. $1,154 (+9.90%)
- Cleveland-Elyria, Ohio $1,070 (+9.70%)
- Riverside-San Bernardino-Ontario, Calif. $1,858 (+9.60%)
- Indianapolis-Carmel-Anderson, Ind. $1,054 (+8.80%)
- Cincinnati, Ohio-Ky.-Ind. $1,083 (+8.30%)
- Memphis, Tenn.-Miss.-Ark. $1,000 (+8.10%)
- St. Louis, Mo.-Ill. $1,075 (+7.50%)
- Virginia Beach-Norfolk-Newport News, Va.-N.C. $1,215 (+7.00%)
But what’s driving these rent increases? Why are rental costs in some U.S. cities rising so much faster than the national average, as of early 2021?
As it turns out, there are several factors at work here. But it mostly comes down to two things — supply and demand.
Some of these metros have experienced significant population growth over the past few years. These markets are housing “hot spots” that have seen an increase in demand on both the rental and purchase side. Migration and population growth have increased rental demand, which in turn has led to rising rents.
Consider New Orleans and Sacramento, the two metros with the largest year-over-year increase in rents. Both of those metropolitan areas experienced double-digit population growth over the past decade.
But it’s not all growth-related. Cities like Cleveland and Rochester have experienced a decline in population over the past ten years. But they also appeared on the list of cities where rents are rising fastest. In those markets, fast-rising rental costs are likely due to a shortage of available units — rather than increased demand.
Where Rents Are Falling the Most in 2021
On the flip side: San Francisco, San Jose, Seattle and Boston topped the list of cities and metro areas where rents are falling the most. In all of those areas, the median rent dropped by 8% or more from January 2020 to January 2021.
Many of the cities where rental costs are dropping happen to be “tech hubs.” San Francisco, San Jose and Seattle top that list. The median rent has also declined within the Austin and Denver metro areas. All of these metro areas have tech-heavy economies.
To quote the Realtor.com report: “Rent declines in expensive tech hubs persist, while smaller markets that offer quality of life become less affordable.”
The following list shows the ten U.S. metropolitan areas with the biggest decline in median rent prices, from January 2020 to January 2021. The percentage shows how much the median fell during that 12-month period.
Where rents dropped the most:
- San Francisco-Oakland-Hayward, Calif. $2,610 (-12.60%)
- San Jose-Sunnyvale-Santa Clara, Calif. $2,670 (-11.10%)
- Seattle-Tacoma-Bellevue, Wash. $1,709 (-8.90%)
- Boston-Cambridge-Newton, Mass.-N.H. $2,240 (-8.20%)
- Buffalo-Cheektowaga-Niagara Falls, N.Y. $1,095 (-6.00%)
- Los Angeles-Long Beach-Anaheim, Calif. $2,490 (-5.10%)
- Washington-Arlington-Alexandria, DC-Va. $1,840 (-4.60%)
- Orlando-Kissimmee-Sanford, Fla. $1,302 (-3.60%)
- Denver-Aurora-Lakewood, Colo. $1,605 (-3.40%)
- Austin-Round Rock, Texas $1,313 (-2.70%)
Renting vs. Buying in 2021: The Math Is Changing
So, is it better to rent or buy a home in 2021? Which one makes more sense, from a financial perspective?
As you can see, the answer to this question varies greatly from one part of the country to the next. In places like Seattle and the San Francisco Bay Area — cities with steep home prices and declining rental costs — it might make more sense to rent than buy a home.
In other parts of the country, including those cities where rents rose significantly during 2020, buying a home might be the smarter play.
Of course, there’s a personal side to all of this. It’s not all dollars and sense. For instance, some people who are now working remotely need a dedicated home office — and that might move the needle into the “buying” column instead of renting.
And a lot of Americans are currently earning less due to economic restrictions, layoffs, business closures and the like. Renting is almost always a better option for people with an uncertain financial picture.
Considerations: Low Mortgage Rates, Rising Home Prices
Mortgage rates are another key consideration in the rent-versus-buy dilemma. As of late February 2021, the average rate for a 30-year fixed mortgage loan was hovering around 2.8%. It hit an all-time record low of 2.65% during the first week of January.
The chart below shows the average rate for a 30-year fixed mortgage loan, over the past three years. It’s based on the weekly survey conducted by Freddie Mac.
Todd Teta, chief product officer for the real estate data company ATTOM Data Solutions, recently told Money:
“Your monthly mortgage payment has been moving down, just because mortgage rates are so low. That’s what’s offsetting home price increases and making ownership still very affordable in a lot of the United States.”
Rates have crept upward a bit since hitting a 50-year record low back in January. You can see that in the chart above. And they could climb higher between now and the end of 2021.
It’s also important to note that home prices continue to climb in most U.S. cities. Some housing markets have experienced double-digit price growth over the past year. This rising trend will probably continue for the foreseeable future.
In February 2021, Zillow’s research team wrote:
“United States home values have gone up 9.1% over the past year and Zillow predicts they will rise 10.1% in the next year.”
The bottom line: If you’re currently renting but would like to buy a home in 2021, you might want to do it sooner rather than later to avoid higher costs down the road.
Disclaimer: This article shows where rents are rising and falling the most. It is based on data provided by third parties not associated with the Home Buying Institute. This report also features home-price forecasts from third parties. Such forecasts are the equivalent of an educated guess.