It's fair to say that 2020 was a pretty miserable year for landlords. The COVID-19 outbreak spurred a major unemployment crisis that led to a sharp drop in rental demand. The situation got so dire that landlords in major metro areas found themselves offering up months of free rent and other such concessions in a desperate attempt to get leases signed.

But the rental market took a very different turn in 2021. As the economy began to improve and unemployment levels began to drop, the demand for rentals increased. And that's something real estate investors were able to take advantage of.

In the course of 2021, the median price for a one-bedroom home rose 11.6% on an annual basis, according to data from Zumper. The median price for a two-bedroom home, meanwhile, rose 13.6% year over year.

A house with a for rent sign in front of it.

Image source: Getty Images.

Not only did rent prices soar in 2021, but many markets that were hard hit in 2020 recovered gloriously. At the start of 2021, New York City rents were down 17.5% compared to March of 2020. By December of 2021, they were up 11.9% percent relative to March of 2020. In fact, rents rose at such a rapid clip that New York City was able to surpass San Francisco as the most expensive rental city in the country.

But while landlords may have enjoyed record-high rents in 2021, the question remains: Will rental prices continue to climb? Or is that momentum unsustainable?

Rental demand could stay strong

In 2021, a lot of people saw their financial situation change for the better, and that led to increased demand for rentals. But that's not the only factor driving that demand.

Last year, home prices soared on a national level on the heels of record-low mortgage rates. This year, mortgage rates are already rising substantially. Home prices, however, don't seem to be going in the opposite direction. Rather, they're holding fairly steady at elevated levels. And given that housing inventory is still at a low, home prices aren't likely to start dropping significantly anytime soon.

Because it's gotten so difficult and expensive to purchase a home, there's a good chance the demand for rentals will stay strong throughout 2022. This especially holds true given that mortgage rates are only likely to keep rising as the Federal Reserve moves forward with plans to institute rate hikes. And if rental demand stays strong, landlords will have more leeway to charge tenants a premium.

Are sky-high rents sustainable?

At some point, the housing market is apt to cool off and homeownership is apt to become more attainable. And once that happens, we could see a notable dip in rental demand, which could drive prices downward.

To be clear, we're not necessarily looking at a catastrophic dip but rather a gradual one. And in metro areas where rental demand is higher than average, it may not happen at all. And so all told, it's fair to say that landlords could have many more months of higher rent prices to look forward to.