Residential rents have fallen in all major U.S. metropolitan areas for the six months through January, a trend likely to continue as this year sees the largest delivery of new homes in nearly four decades.
Tenants on new leases paid an average rent in January that was 3.5% lower than last August, according to listing website Apartment List. By the same estimates, it was the first time in five years that rents had fallen every month for six months.
Four other market metrics from housing data companies also show that new rental rents either fell or remained flat in January compared to the previous month, continuing a series of monthly rent declines that began at the end of the summer.
The slowing rental market follows an unprecedented run for the apartments and rentals industry set in motion by the pandemic. Backlog demand for housing exploded in the months following the rollout of Covid-19 vaccines in late 2020, and a surge in home-seekers pushed rents up 25% over two years.
Now, the recent declines are a sign that many renters have exhausted the proportion of their income they can spend on rent, while the specter of layoffs has raised new concerns for some. Other potential renters, living with family or friends, are sidelined by prices that are still far too high for their budget.
While some seasonal slack in rents is normal, the market is facing significant headwinds in the largest supply of new listings since 1986, the CoStar Group forecasts. Nearly half a million new homes will come on stream this year as developers seek to capitalize on the high rents renters are paying. Many renters cannot afford to buy a home due to higher mortgage rates and high prices, so rental housing is in high demand.
The opening of these new units will give tenants more choice, making it harder for landlords to raise rents to the rates seen in early 2022, when rental growth was nearly 20% per year.
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The new offer can already have an effect. The proportion of apartment tenants renewing leases fell to 52% in January, the lowest for the month since 2018, according to property management software company RealPage. The data suggests that some tenants are finding better deals in other buildings.
“Renters facing lease extensions suddenly have a lot more options,” RealPage economist Jay Parsons said in a report. Landlords will likely start lowering their subsequent rents to prevent tenants from moving out, he added.
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According to the Consumer Price Index calculated by the US Bureau of Labor Statistics, housing costs increased by 7.9% in January compared to the same month last year. But the impact of rent declines tends to lag behind what is expressed in the CPI. Many renters are in the middle of leases that were signed before the recent price cuts. That’s one reason why the rising cost of rent, reflected in the CPI, shows annual price growth that’s still higher than market measures that track new leases.
Annual rental growth remains positive according to most data sources. But the pace of growth is slowing, and if it continues to slow beyond the winter it would help bring down headline inflation numbers, of which housing costs are a key component.
Rent growth for new leases in January was between about 2% and 6% year over year, according to most market reports, well below the pace of growth seen in early 2022. As more leases expire, analysts expect CPI numbers to better reflect the lower ones Cost of new leases.
Rents for single-family homes, which had also risen sharply before last summer, are now stagnating.
Photo: Gene J. Puskar/Associated Press
In the months since August, new lease rents have fallen the most in some of the country’s largest metro areas. According to Apartment List, rents in Seattle are down 8%, while rents in Boston and Las Vegas are down 6%. Notably, none of the 52 largest metro areas tracked by the company experienced positive rental growth during the period.
Rents for single-family homes, which had also risen sharply before last summer, are now stagnating. According to data provider Yardi Matrix, the average national asking rent for a home rose just $1 in January compared to December to $2,070.
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Apartment vacancies have risen since last fall, multiple reports show, due to weaker demand from potential tenants. Fewer people are flocking to “zoomtowns” — communities that have experienced a surge in population from an influx of remote workers — like Boise, Idaho or Phoenix compared to earlier in the pandemic, notes a recent report by listing website Zumper.
Even after a 3.5% fall in new-rental rents since last summer, rents in many cities remain 20% or 30% higher than when the pandemic began. Rents in the Tucson, Arizona, Tampa, Florida and Miami metro areas are 35% higher than in March 2020, according to an Apartment List report.
“Renters are still having a harder time than they were a year and a half ago,” said Chris Salviati, an apartment list economist.
Rents in many sunbelt cities like Miami Beach, Florida remain higher than they were before the pandemic.
Photo: Marco Bello for The Wall Street Journal
Write to Will Parker at [email protected]
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