Yahoo Finance Phoenix, Dallas, Atlanta see rent increases top 10% in July
After falling during the height of the pandemic, rents have bounced back and are hitting consumers hard from coast to coast, according to a new report from Bank of America.
Rental prices in metropolitan areas like Phoenix, Arizona, and Dallas saw the biggest jump in July, with median rent payments rising over 10% from the prior year last month.
Increases were seen across all income groups and demographics, but middle-income and younger Americans are seeing the largest rent increases, the report said.
And rents are expected to stay elevated this year as would-be homebuyers are priced out of the market amid rising interest rates and elevated home prices.
July's inflation report showed shelter costs — which make-up about one-third of the weight in the consumer price index — rose 0.5% from June and 5.7% from last year, the most since 1991.
The rise of remote work during the pandemic snipped the tether between home and office — allowing workers to move out of high costs cities. Prices in southern state cities have increased 9.4% over the past year compared to Northeast regions — where prices are up 7.3%.
A main driver for escalating rents in southern regions: limited supply.
"Vacant rental units as a share of total housing units in the South dropped by nearly one percentage point, the steepest decline among all four regions since 2019," Bank of America's report said.
This data differs from the median rent payment in Los Angeles and New York — where rental costs in July increased by 3% and 4% year-over-year, respectively. But the median rent payments for Bank of America customers might not capture real effective rent payment.
For instance, during the pandemic, New York City landlords offered large discounts that included several months of free rent in an effort to lure renters, or keep listed rent prices elevated. But those pandemic-era discounts have expired across New York City this year as demand surges back into the rental market. As a result, that competition could cause BofA's median rent payment data to understate the effective increase in rent payments, the report noted.
Still —competition has also been fierce in the rental market. In New York, bidding wars accounted for one in five Manhattan leases signed this year, and winning offers were on about 13% above the listing price, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.
Another notable data quirk the firm notes is that for Bank of America customers, rent payments have risen 5%, less than what broader data suggests. The firm notes this likely reflects a customer base that skews older, as rent payment increases have been inversely correlated with a renter's age in the last year.
Data from BofA shows younger customers are the ones getting squeezed by the higher rental costs with Generation Z (those born after 1996) paying 16% more year-over-year this month compared to Baby Boomers (those born between 1946 and 1964) who are paying 3% more.
"With rent inflation being one of the stickiest components of inflation and expected to increase further, consumers will continue to face the downward pressure to their financial situations, although elevated savings and wages may provide an offset for now," the report said.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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