Rental bid wars flare up as the economy improves in a tight housing market

It’s usually reserved for homebuyers, but bid wars are becoming more and more common in the home rental market. The demand for apartment and single-family rentals is rising and outstripping supply.

As the economy improves, workers are moving out of shared living situations and looking for their own homes. In addition, the housing market is now so expensive that many potential buyers are priced in. This made them look for rentals.

Some landlords see more than a dozen applications for good properties – and the tenants offer a much higher offer than the asking rent.

“We’ve been renting properties for nearly 20 years, and we haven’t seen a pool of applicants with this competition since we started,” said Vipin Motwani, managing director of Iron Gate Development in Maryland.

Motwani listed a Clinton, Maryland home two weeks ago and had 20 potential tenants passing by. Then he received 10 requests, much more than usual. Due to stiff competition, tenant profiles are now changing as well. Meaning, they have more money and a better credit history.

“The rental applications we get now, you see higher credit scores, you see applicants willing to offer more in terms of security deposit, you see a strong rental record as well. That wasn’t necessarily the case before Covid,” Motwani said.

Matt Van Slick moved to New York City this weekend to start a new job. And he toured about 15 apartments in two days after searching apps like StreetEasy. He’s seen the unit prices he’s been looking at go up by $300 to $400 over the past two to three months.

He said, “The person I really wanted to apply to was I was looking for him with three or four other people on the tour. Before I got home, I immediately put my information together, and I applied, and the applications have already been submitted,” he said. .

did not understand. And he was the one he really wanted.

Then Van Slyke tried with another app that already had several apps and lost that too. He said he eventually settled on something more expensive than he would have liked, a studio in Manhattan’s East Village, because he felt a “crunch of time” because of his job and “it seemed like everything else was flying off the shelves.”

The rental applications we get now, you see higher credit scores, you see applicants willing to put in more in terms of a security deposit, and you see a strong rental history as well. This was not necessarily the case before Covid.

Vipin Motwani

Managing Director with Iron Gate Development

Intense competition has led to rents rising at a robust pace.

In July, rents nationwide rose 7% year over year for one-bedroom apartments and 8.7% for two-bedroom apartments. That’s up from 5% and 6.5% annual gains in June, according to Zumper, a national rental listing platform.

Some markets see more demand than others. This spring, New York City saw rental requests double compared to 2020, San Francisco saw a 79% increase in potential renters, and Seattle saw a 55% jump, according to RentCafe, a rental listing website. Meanwhile, Boston saw only a 5% gain, while rental requests were up 8% in Charlotte, North Carolina, and 9% in Portland, Oregon.

For single-family rental homes, Corelogic’s latest reading in May showed rents rising 6.6% year over year, nearly four times the annual increase seen in May 2020.

“Strong job and income growth, as well as fierce competition for housing for sale, is fueling demand for single-family rentals,” Molly Bussell, chief economist at CoreLogic, said in a statement. Bussell said she expects these factors to continue to drive the market this year, particularly in and around cities and technology centers as people begin to return to offices.

Single-family real estate investment trusts, namely Invitation Homes and American Homes 4 Rent, have reaped the rewards, beating estimates in their latest earnings release on occupancy and solid revenue.

Rental demand has pushed American Homes 4 Rent’s results beyond expectations, CEO David Singelen said in a recent call with analysts.

“Today there is a shortage of national housing in more than 4 million homes,” he said. “This combined with the single-family rental value proposition provides the backdrop for continued long-term rental demand growth.”

Real estate stocks are also seeing big gains. Names like Avalon Bay, UDR, and Essex Property Trust are all up more than 30% since the start of the year. The return trip from urban areas is mirrored. Occupancy rates and rents for city properties are on the rise.

The moratorium on evictions due to the coronavirus pandemic, which was recently extended, is also playing a role in the supply situation. Since some landlords are unable to evict non-paying tenants, they have less to offer to those who can pay. To offset losses, some raise rents on properties they can, knowing that market demand will support the increases.

Motwani has had several tenants unable to pay and said he has lost about $30,000 so far during the pandemic.

“The moratorium on eviction has caused hardship for landlords, coupled with the fact that the rent assistance program has not actually started, in the way it was supposed to already be causing stress on both tenants and landlords,” Motwani said. .

CNBC producers Lisa Rizzolo and Stephanie Doe contributed to this report.

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