Buying a house is not fun. The good news? You can rent instead.
The bad news? Renting is also not fun.
The reasons why are pretty similar to those behind the high prices homebuyers face: Basic economics.
“It truly is that classic supply and demand challenge we’re seeing,” says Lily Liu, CEO of Piñata, an app that provides services for renters and landlords, including reporting rent payments to credit bureaus.
As with single-family homes, the years after the financial crisis of 2008 saw a big drop in the number of multi-family residential buildings being built. Then the COVID pandemic hit, and housing demand soared. The hot housing market means many people who wanted to buy a house couldn’t afford it.
“People were looking in the last few months whether prices would drop significantly. Prices are actually pretty stable on the housing side, which means it still continues to be a difficult market to buy,” Liu says. “That means more renters, and you’re going to see a lot of renters who are renting as a predicament.”
That means it costs more to put a roof over your head. The median national asking monthly rent was $2,016 in June, up 14.1% compared to a year earlier, according to Redfin. In some areas, rent is rising much faster – 39% year-over-year in Cincinnati, 33% in Seattle, 32% in Austin.
Here’s what experts say you can do to navigate a chaotic rental market.
Why Is Rent Rising?
The rental market and homebuying market are connected, but not precisely, experts say.
The housing boom
The past few years have been a perfect environment for home prices to rise: More people wanted to buy a home because of remote work and demographic factors. Meanwhile, mortgage rates were at record lows because of policies intended to support the economy, while supplies of available homes were low because too few homes were built in the decade after the financial crisis of the 2000s to meet demand.
It created a highly competitive market for homebuyers, with homes only lasting days on the market in some areas and buyers often failing repeatedly to get a bid accepted. That’s changed a bit, as rising mortgage rates since the start of the year have dampened demand.
“There definitely is a cause and effect but I wouldn’t say the housing market is 100% to blame for what we’re seeing in the rental market,” says Brian Carberry, senior managing editor at Rent.com.
Moving to cheaper cities
Renting is getting harder in some markets than in others. In Miami, for example, an influx of remote workers used to paying New York City rents has put upward pressure on prices, says Ruth Shin, founder and CEO of PropertyNest, a digital real estate rental firm in New York. In many cities, rent changes are due in part to “the different activities and movements of people in the last three years now due to COVID and the lockdown and moving around.” A survey by PropertyNest found that two-thirds of Americans who left major cities due to the pandemic don’t plan to return.
Another city that has seen big changes is Austin, where the average rent is about $1,000 higher this year than it was last year, Carberry says. Much of that is due to tech workers moving from the West Coast. Affordability is relative. To someone from California, “it’s going to look like a bargain,” Carberry says. “For someone from Arkansas who wants to move somewhere else, it’s going to seem more expensive.”
How to Get a Better Deal
Homebuyers have resorted to some dramatic tactics to close the deal in the last couple of years, like offering way over the asking price, or waiving inspection and appraisal contingencies (which is risky and many experts advise against). Renters don’t have as many of those tools in their toolbox when trying to score an apartment, but there are some tactics you can use that might help.
Cast a wider net
First, you might want to be more flexible about your options. “The choice neighborhoods, they’re just not going to be there or they’re going to be way too expensive,” Shin says. It might mean a longer commute or a less-than-ideal location, but you might be able to find a better deal or an easier route to moving in.
You can also be more flexible about the type of rental unit you’re looking for, Shin says. In many cases, this means being willing to go for a smaller place or somewhere with fewer amenities, but that isn’t always true. In highly competitive cities like New York, it might be easier to find a one-bedroom apartment in another neighborhood than a studio in your dream spot.
Find ways to negotiate
Prospective renters can also negotiate the length of the lease – offer to sign for a longer term for a better deal – or find roommates, Liu says. “These are things that may take people out of your comfort zone,” she says.
There could be drawbacks, particularly in hot cities like New York, to going the roommate route, Shin says. “Everybody’s got to get all of their paperwork together, know their income and financial situation,” she says.
For those who are currently in a place and face rising rents, Liu advises that you talk with your landlord or property manager about concerns. She’s heard of landlords offering extensive payment plans or other options for current tenants facing increases. “What we’re seeing is more flexibility from owners and operators on when and how they accept payments,” she says.
If you’re in an apartment or a rental unit and your landlord is raising your rent beyond what you can afford, your first call should be to your current landlord. They may be willing to negotiate in order to avoid having to put the unit back on the market.
Preparing Yourself for This Rental Market
Landlords and property managers often have more prospective tenants than they have units, so you need to make yourself stand out from the crowd.
Have your financial documents ready
The best way to stand out is to have your paperwork in order and your finances in the best possible shape.
You want your rental application to be as good as it can be, Carberry says. That means make sure you have a good credit history, were not late on previous rent payments, and have your finances in good shape – you can afford the rental payments. “That’s what’s going to put you at the top of the list in order to rent a place,” he says.
Importantly, don’t go for a place you can’t afford just because it’s available now. “The worst thing you can do is be house poor and have to break that lease,” Carberry says. “That will put you at the back of the line for the next apartment.”
In New York City, Shin says, the “gold standard” credit score to get an apartment is at least 680, but landlords will also consider your credit history, looking for red flags such as high balances. In terms of income, they want you to be making 40 times one month’s rent, or to at least have that in your savings. And you need to have all of that paperwork ready to go. “If you don’t have those things, they’re not going to wait for you,” Shin says.
Overall, prospective renters need a combination of patience and preparedness, Carberry says. The perfect spot might not be available now, but you should be ready to go when it is. “Be patient because something will come up that you’re looking for. Be ready to act but don’t act on something unless it’s right for you,” he says.