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Rent: Single-family homes and apartment rent continue to surge, but they have been doing so at an extensively slow pace.
Meanwhile, inflation is squeezing consumers while landlords have been losing pricing power.
Growth
In November, rent growth slowed for the tenth consecutive month, going up only 3.4% compared to the rate in November 2021.
According to Realtor.com, it is the smallest gain in 19 months.
Meanwhile, the median asking rent in the 50 largest metropolitan markets dropped to $1,712.
It is down by $22 from October and $69 from the peak in July.
Danielle Halle, the chief economist for Realtor.com, released a statement, saying:
“Many Americans’ budgets are being pulled in multiple directions as the holidays approach, bringing a more typical season cooldown to the rental market that we haven’t seen in the last few years.”
“Despite this recent relief, renters will continue to be challenged by affordability in 2023, with rents forecasted to hit more record highs.”
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Market
Rent relief varies according to the market.
For example, Sun Belt rents rose by 0.9% year over year while cities like Jacksonville, Florida, and Austin, Texas, saw annual declines in rents for the first time in almost two years.
Meanwhile, Midwest markets have become less affordable as rents are rising nearly 10% and 9% in Indianapolis and Kansas City, respectively.
Although the Realtor.com report observes all rents, another report that focuses on single-family rents in October painted a similar picture.
CoreLogic reports that single-family rents slowed to 8.8% growth compared with October 2021, which saw the lowest appreciation rate in over a year.
However, it is still three times the pre-pandemic rate.
Rents typically slow down in the fall, but the 2022 rates were slower than average.
Homes and apartments
Rents for single-family homes surged faster compared with homes due to the single-family homes supply being lower than apartments.
Additionally, there was more demand for single-family homes in the suburbs during the first years of the pandemic.
A majority of the renters haven’t moved.
Meanwhile, demand is still strong in the Sun Belt.
For example, single-family rents in Miami, Orlando, and Florida ranked the highest, which is up 16% (Miami) and 15.5% (Orlando and Florida) from the year before.
Read also: Mortgage application rises as interest rates decline
Construction
As homebuilders continue adding to the built-for-rent market, slower rent gains may already be weighing on multifamily construction.
According to the US Census, multifamily building permits dropped a wider-than-expected 18% in November as opposed to October.
Peter Boockvar, the chief investment officer at Bleakley Financial Group, said:
“I have been hearing anecdotal stories of multifamily projects getting canceled because the numbers no longer work with the still elevated cost of construction, the sharp rise in funding rates, and the slowing pace of rent growth.”
The factors, along with a high level of current construction, are pointing to a sharper slowdown next year.
According to Robert Dietz, the chief economist for the National Association of Home Builders, there were 932,000 multifamily units under construction in November.
It was the highest number since December 1973.
“We are forecasting declines for apartment construction in 2023 due to the large amount of supply in the construction pipeline, as well as tightening commercial real estate finance conditions,” wrote Dietz after the November home construction report.
In November, the Commerce Department released a report saying that US single-family homebuilding fell to a 2-½ year low.
The report also said that permits for future construction plunged as higher mortgage rates continued depressing housing market activity.
References:
Rents are now rising at the slowest pace in 19 months
Higher mortgage rates depress US single-family housing starts, building permits
