Laura Beck
Sep 23, 2024
As with most things, what’s happening with the broader economy affects the rental market.
“Shutting down an economy, choking the supply chain and then following this up by raising the Federal fund rate skyrocketed inflation,” DeLuca shared.
This inflationary pressure has made life in already expensive cities even less affordable. As a result, it’s no surprise that people are moving out.
Rent prices in some of America's largest cities, such as Miami, Los Angeles, New York City, San Diego, Boston, and Riverside, California, are seeing a surprising drop. This decline, described as a “rental market correction,” is being driven by several key factors, according to experts like Anthony DeLuca from RetireGuide, who shared his insights with GOBankingRates.
The COVID-19 Pandemic's Impact
DeLuca explained that the pandemic caused many Americans to relocate from states with stricter COVID-19 restrictions. "Many Americans were fleeing more liberal-run states to escape the strict COVID restrictions that were enforced," he said. As people left these urban centers, demand for rentals fell, forcing landlords to lower rents to attract tenants. Additionally, with the rise of remote work, many people chose to live in more affordable, smaller towns instead of high-priced cities.
Taxation Differences
Tax policies also play a role in the migration patterns driving rent decreases. DeLuca noted that "almost all the states that Americans are moving towards have lower or no state income tax," making them more attractive compared to high-tax states like New York and California. This tax disparity incentivizes people to relocate, reducing rental demand in high-tax cities.
Inflation and Rising Costs of Living
The broader economy has also had a major impact on rent prices. DeLuca highlighted how economic disruptions during and after the pandemic, such as supply chain issues and rising interest rates, have caused inflation to surge. "Shutting down an economy, choking the supply chain and then following this up by raising the Federal fund rate skyrocketed inflation," he said. These economic pressures have made life in expensive cities less sustainable for many, further reducing demand for rentals.
The ‘Silver Tsunami’ and Demographic Shifts
DeLuca pointed out a demographic factor influencing rental markets: the mass retirement of baby boomers, which he refers to as the "Silver Tsunami." "The baby boomers are retiring at a clip of 10,000 people a day. They are moving south," he said. As retirees leave northern cities for warmer climates, demand for housing in southern states increases, while rental demand declines in the cities they leave behind.
Migration Trends
Migration data supports these trends. DeLuca shared that between July 2021 and July 2022, Florida gained 1,218 new residents per day, while Texas welcomed 958. In contrast, states like California, New York, and Massachusetts, which are seeing rent declines, all experienced negative net migration.
The Ripple Effects
Lower rents can make these cities more accessible to new residents, but DeLuca cautioned that investors might see lower returns in the short term. However, as these cities become more attractive due to affordable rents, more people may move in, eventually causing rents to rise again. DeLuca emphasizes that the rental market, like many aspects of the economy, is cyclical.
In summary, rent prices in major U.S. cities are dropping due to the lingering effects of the pandemic, tax burdens, inflation, and migration patterns. While this presents opportunities for renters, it also signals potential changes for investors and landlords.