The National Association of Realtors projects a 4% average increase in rents nationally this year and 4% in 2013. It’s motivated aspiring landlords to snap up property and pushed Wall Street firms to pursue buying lender-owned properties in bulk. It also means the deals renters could finagle during the worst of the downturn no longer exist in the cities that have rebounded the strongest.
Take Minneapolis. With a tight vacancy rate of 2.5%, the average rent in the metro area is $965 per month, up 2.3% from this time last year. With home prices down more than 30% since 2006, it’s actually cheaper to buy: The average monthly mortgage payment on a home bought now would be $122 less than the average rent. That put Minneapolis in second place on Forbes' annual list of the worst cities for renters this year.
“The rental market here has been hot for about a year,” says Teresa Boardman, a realtor with Saint Paul Home Realty. She says rental properties in downtown Minneapolis and around the University of Minnesota have been in particularly high demand. “My daughter had a one-bedroom apartment for almost $900, and I mean it was very small. I have clients renting efficiency apartments and those are going to $850 to $900 a month.”
Gallery: The Best And Worst Cities For Renters
Behind The Numbers
To find the places where renters fare the best and worst, we started with the 44 largest U.S. Metropolitan Statistical Areas (MSAs) and Metropolitan Divisions (MSADs). These are cities and their surrounding suburbs, as defined by the U.S. Office of Management and Budget.
With the help of Marcus & Millichap, an Encino, Calif.-based real estate investment firm, we ranked these metro areas according to four criteria: average rent in 2012’s first quarter; how much that price has changed year-over-year; vacancy rates, since more empty units means more choices and, typically, better prices; and the difference between the average monthly rental payment versus monthly mortgage payments (including taxes and insurance on a home at the local median asking price with a 30-year mortgage at 4.5% with 20% down).
If the Twin Cities’ rental market is sparking, New York is on fire. While rents have always been notoriously high in the Big Apple, it still has long been considered a place where renting beats buying. That’s changed: the New York metro area takes the top spot on our list of worst places for renters.
A mortgage payment on a median-priced home in the metro area currently costs $217 less than a rent check. “They’re almost on par which is amazing because it has usually been the reverse,” says Hessam Nadji, a managing director at Marcus & Millichap.
He notes that rents in New York City only fell 10%-12% in the downturn, and only during the worst of the 2009 recession. Thanks in large part to stronger-than-anticipated job growth, a rental market recovery took root in 2010; by the end of 2011, the rental market had not only recovered its pre-recession level prices, it started to surpass them.
The biggest rent increases have been in Manhattan, where the vacancy rate is an astoundingly low 1%, says Gary Malin, president of Citi Habitats. His real estate brokerage, which tracks local rent data on a monthly basis, reports that the borough’s rents are at an all-time high, 1.3% above the former 2007 peak. And they’ll keep climbing: a mere 2,600 additional apartment units are projected to come available in 2012, the lowest amount in years. “The reality is there isn’t a lot of new inventory to keep up with demand,” says Malin.
Gallery: The Best And Worst Cities For Renters
Other cities where rising rents are making it hard on the pocket book are San Jose, Calif. (No. 4 on our list), Washington, D.C. (No. 6), and Boston (No. 7). “The primary coastal metros are markets with incredibly low vacancies where it’s really hard to add units because of regulations,” explains Nadji. He says rents are surging in places where job growth has been relatively robust over the past year.
On the flipside, rental bargains can still be found in many of the cities rocked by the real estate bust. No. 1 on our list of best cities for renters: Tucson, Ariz., where the average monthly rent is just $652, a 1.6% increase from last year. The vacancy rate is 6%, helped by a relatively large pool of unsold, vacant homes, translating into more choices and reasonable rents for locals happy to stay away from an uncertain home market.
The renting is also good in Texas: San Antonio ranks fourth on our list of the best cities for renters and Houston is No. 6. The state is adding jobs and population, but thanks to a lack of building regulations and zoning, developers have little issue erecting new houses and apartment complexes to keep pace with demand. “Texas is the country’s highest construction region over a long-term period of time,” says Nadji. San Antonio has a 6.7% vacancy rate and Houston’s is 8.1%. Average rents in both metro areas are under $800.
Gallery: The Best And Worst Cities For Renters
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