That pattern didn’t hold everywhere. In less-dense cities, rents more or less stayed the same while home prices increased. In sprawling suburban Atlanta, home prices were up 20% in January, but rents only 4%. It wasn’t until recently that prices began to rise together.

Rental prices are now overtaking home prices

Rents are rising alongside home prices nationwide once again thanks to the “spillover” effect: Families looking to buy their first house are being shut out of the market, pushing up demand in the rental market. But this time they’re also rising at a much faster clip than before as property owners make up for lost income during the pandemic.

This is especially true in big cities. Urbanites who can’t break into the expensive real estate markets are remaining renters longer. In cities like New York, median rent has already surpassed the pre-pandemic peak, and the median rent for a one-bedroom apartment in the US rose 11.6% for the year, according to Zumper.

Housing costs going up across the board

The rising prices in US rental markets can be traced back to the imbalance of supply and demand in the housing market. Even before the impacts of the pandemic,  the US was dealing with a shortage of new home construction that federal mortgage company Freddie Mac attributes to land use restrictions, labor shortages in construction, and lagging demand from first-time buyers. Economists now estimate that the US faces a housing shortage of between 4 million and 5 million units relative to new households being formed. Today, home builders can’t build new properties fast enough to meet demand from all the new buyers trying to enter the market.

That means rent prices are likely to continue to rise faster than home prices for at least the next year.’s annual housing market forecast predicts national rent growth of 7.1% for 2022 The US home prices continue to rise as well, but more slowly: the national price index rose 1% this September from the previous month, down from month-over-month growth of between 2% and 4% during the beginning of 2021.

All of this means buying will seem more affordable by comparison, according to John Berkowitz, founder and CEO of OJO Labs.

For those who can afford the initial down payment, homeownership typically works out to be a better financial investment in the long run because of equity built over time. But now, rising rents are making the trade-off even clearer. The impacts of increased demand in the housing and rental market, plus across-the-board inflation is going to make the cost of housing go up next year. Berkowitz and others in the real estate industry expect home appreciation and rent growth to slow down, but not stop, later into 2022. Americans are likely to find even a high monthly mortgage payment looks better than rising rents year after year.

That’s not a great situation for those caught in the middle, says George Ratiu, a senior economist at The unaffordability of the rental market and the steep competition for homes leaves many people “squeezed between a rock and a hard place,” he says.

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