The combination of skyrocketing home prices and a rise in remote work that began during the COVID-19 pandemic have given the U.S. rental market a major facelift, as many American renters are packing up and moving to cheaper markets.
Out-of-state applicants for rental properties increased 42% from 2020 to 2021, according to a new report by TransUnion. Over the same time frame, rental applications in rural areas rose 28%, while urban rental application volume rose only 10%. Rising housing costs and a sharp increase in remote work were likely the biggest contributors to these shifts.
Cross-state migration patterns show more people (and renters) leaving the Rust Belt and Northeast in favor of the Southern Atlantic and Mountain states, as well as Arizona and Texas.
The overall occupancy rate of U.S. rentals reached a record 98% in January 2022. The increase was partly driven by an influx of Americans who sold their homes while housing prices were at an all-time high and then decided to rent until valuations come back down again.
An analysis of rental applications from 2020-2021 found that there was a 37% increase in applicants who sold their homes within the past year, and a 16% increase among applicants with an outstanding mortgage.
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Much like the housing market, the U.S. rental market has been constrained by a lack of supply, with new units lagging demand amid supply-chain logjams, high materials costs and an ongoing labor shortage. This contributed to a 14% increase in average rent prices between 2020 and 2021.
At the same time, the median income of applicants increased only 6% from 2020 to 2021, leading to a rise in delinquencies on rent payments. On-time rent payments fell to 92% at the end of 2021 from 96% in January 2020.
“While conditions were exacerbated by migration patterns over the past two years, the rental market has been struggling with a lack of supply since even before the pandemic,” Maitri Johnson, vice president of tenant and employment screening at TransUnion, told GOBankingRates in an email statement.
Although construction permits are at their highest level in many years, supply chain issues have had an impact on new inventory, she added.
“This is one of the reasons the ‘Build To Rent’ asset class is starting to emerge as a timely alternative/solution to adding inventory under tight market conditions,” Johnson said.
Meanwhile, immigrants should help buoy the rental market well into the future. More than 80% of immigrants who have been in the U.S. five years or less are renters, TransUnion reported, citing data from the U.S. Census Bureau and Joint Centers for Housing Studies of Harvard University. Even after five years, the majority of immigrants rent, including 70% of those who have been in the U.S. for five to 10 years and 57% of those who have been in the U.S. for 10 to 20 years.
“Because people who immigrate to the U.S. tend to remain renters for long periods, there is likely a compounding effect to this sustained increase,” Johnson said in a statement. “The current demand resulting from the housing market may subside as home prices come down, but this population will likely keep rental demand elevated over the coming decades.”
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This article originally appeared on GOBankingRates.com: Rental Trends: How COVID and Rising Home Prices Led to Market Boom and Increased Cross-State Migration