Rent Prices Decrease as Supply Increases

Renters can breathe a sigh of relief as home prices continue to rise, but rents are finally falling after a prolonged increase over the past few years. And there’s even better news on the horizon.

According to real-estate brokerage Redfin, the median asking rent in the U.S. dropped by 0.8% in December compared to the previous year. The median price now stands at $1,964. Redfin attributes this decline to an increase in the supply of rental properties due to a significant “building boom” that is meeting the demand.

Apartment List also confirms this downward trend, reporting a national decline in rent growth of 0.8% for December. They highlight how these rent prices sharply contrast with the prevailing conditions of 2021 and 2022 when rent growth surged nationally at an annual rate of 18%.

However, it’s important to note that there is a seasonal aspect to these declines. Rent prices typically fall during the autumn and winter months, and December falls right in the middle of the off-season. Apartment List predicts that rents will likely continue to fall for one more month before rebounding.

Interestingly, falling mortgage rates could actually benefit renters. With lower mortgage rates, some tenants who have been waiting on the sidelines of the housing market may now be able to pursue homeownership. This shift in demand from rentals to homeownership would result in more vacancies for landlords, further driving down rent prices.

The Impact of a Building Boom

Both Redfin and Apartment List agree that the construction of new apartments is playing a significant role in lowering rents. Federal government data reveals that the number of completed apartments in the U.S. is currently at its highest level in over three decades. Moreover, the number of multi-family units under construction is approaching a record high.

This ongoing construction boom is contributing to an increase in rental supply, which is ultimately leading to lower rent prices for tenants nationwide.

The State of Rent Growth in US Cities

The rental market in the United States is experiencing a significant shift, with an increasing number of vacant units hitting the market. This trend is expected to continue in the coming year, according to Apartment List. As a result, rental prices are likely to undergo further decline.

Slowdowns in Rent Growth

The most substantial slowdowns in rent growth have been observed in the South and the West regions of the country. Among the top 100 largest cities, 60% experienced a decline in rents on an annual basis. The steepest drops were recorded in Oakland, California, with a decrease of 9.3% year-over-year, followed by Huntsville, Alabama (-5.7%), and Atlanta, Georgia (-5.6%).

Apartment List specifically emphasized the prevalence of rent decline in the Sun Belt. Cities like Austin, Jacksonville, Phoenix, and Orlando, which had witnessed over 20% rent growth in 2021, are now experiencing the fastest rental price drops.

Rent Growth in Midwestern and Northeastern Cities

Conversely, several Midwestern and Northeastern cities are witnessing an opposite trend, as rents begin to rise once again. Redfin reports that median asking rents in the Midwest have increased by 3.7%, while the Northeast experienced a growth of 1.7%.

According to Apartment List, these regions are better able to maintain rental prices due to slower construction rates compared to the South and West. Landlords in the Midwest and Northeast face fewer vacancies, providing them with less incentive to lower rental prices.

Cities with Strong Rent Growth

Amidst the varying rental market conditions, certain cities still exhibit strong rent growth. Lexington, Kentucky, leads the pack with an annual growth rate of 6.4%, followed closely by Norfolk, Virginia (6.3%), and Fresno, California (5.5%).

Furthermore, major metropolitan areas like New York City, Boston, and Chicago continue to experience rising rents, as indicated by Apartment List’s data.

As the rental landscape continues to evolve, it will be important for both tenants and landlords to stay informed about these market dynamics.