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July 23, 2012

Rents Rise as More Americans Flock Back Into Cities

Syndicated —

Metropolitan rent prices have been climbing for months. New population figures from the U.S. Census Bureau shed light on one reason why: Most of America's big cities are suddenly growing faster than their outlying suburbs.

Boil that down, and what do you get? Higher rental demand.

Reporting on the latest Census figures, The Associated Press said this type of shift in population growth has not been seen since prior to 1920 and comes as today's young adults "shun homebuying and stay put in bustling urban centers" to boost their odds in a fragile job market.

In nearly two-thirds of 51 large U.S. metro areas, city population growth equaled or outpaced that of nearby suburbs, the AP found. The report said the trend was driven by 18- to 29-year-olds - so-called "generation rent" - and noted that a mere 9 percent of 29- to 34-year-olds were approved for a first-time mortgage from 2009 to 2011.

At the same time, rents have been on the rise from Baltimore to San Francisco. The Zillow Rent Index for May shows a correlation of rising rent prices in nearly all 15 cities with the greatest population influx.

The median rent in Austin, TX, which overtook San Francisco as the country's 13th largest city, climbed 10.8 percent for the year to $1,398. Charlotte, NC added 19,663 to its population and 11.4 percent to its median rent, now $1,106. The stories were similar in San Antonio, El Paso, TX, Washington, DC, Los Angeles and San Jose, CA.

Higher demand, higher rents

Demand for rentals has swelled for several reasons. Mortgage lenders have grown more restrictive. Foreclosures have increased the national pool of renters, and many who can afford to buy are opting to rent instead, fearing a home purchase could lose value and remain hard to sell for years to come.

"The biggest driver of rental demand has been the enormous foreclosure crisis set off by the housing recession," said Zillow Chief Economist Stan Humphries. "The homeownership rate has plummeted from its high in 2004, and these foreclosed households have to live somewhere. What will keep rental demand high is the fact that many of these foreclosed households will still have impaired credit quality even after the economy has improved."

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