After years of soaring rent prices, the United States is seeing a rapid fall in this statistic.
Many millions of tenants are seeing rent relief for the first time since the pandemic’s early months, thanks in part to an increase in the availability of available apartments.
Rental prices may fall further this year as fewer people move due to an uncertain economy, stubbornly high rental prices, and rising inflation.
Renters faced a 25% nationwide average rent increase beginning in the second half of 2020 early last year.
By the second half of 2022, exorbitant rents had reduced demand since so many prospective tenants had been driven off the market.
Rent Prices Continue to Drop
On June 13, The Wall Street Journal evaluated the top average national rental price estimates and discovered that asking rentals for new leases increased by nearly 2% over the previous year, which ended in May.
According to data from CoStar Group and RealPage, this is a departure from the double-digit price hikes in 2022 and the biggest fall in recent years.
The last time asking rents decreased over 12 months was during the financial crisis of 2008–2009 and the brief decline during the 2020 pandemic.
Although one of the top three components of the Consumer Price Index is housing prices, rent declines also contribute to inflation.
According to Apartment List, there has been negative rent growth for new leases in 48 of the 100 major U.S. cities as multifamily building values have decreased nationwide.
After taking out large loans to buy properties when landlords were still raising prices, many investors may suffer financially from an annual decline in new rent prices.
A shifting reality is now confronting some investors who purchased apartment buildings with the idea of raising rents, particularly in the Southwest, where many people are suffering financial losses.
Apartment Construction Boom Alleviates Rent Prices
According to the real estate company Redfin, the surge in newly constructed apartments is increasing rental supply as economic uncertainty is starting to temper demand.
Rent rises are anticipated to slow down in areas of the country like the South and Southwest, where construction is booming due to increased competition among landlords.
Since there are more options available to prospective tenants, the increase in new units may limit landlords’ ability to increase rates when many are already dealing with an increase in vacancies.
Since May 2022, rents have dropped by 1% nationwide, the most in over three years, in part due to the rise in unit supply, according to Redfin.
The brokerage also revealed that asking rents dropped the most since the epidemic was proclaimed in March 2020, by 0.6 percent, or $1,995, in May.
While the median asking rent increased 1.4 percent from a month earlier in May, this is in contrast to the nearly record-breaking 16.5 percent increase from a year ago.
According to Redfin, a large number of homeowners are choosing to rent out their properties rather than sell them as a contributing factor to the growth of the rental supply.
Landlords Lessen Demands From Tenants to Renew Leases
Geographically, the decrease in rental prices has been uneven, with the West experiencing a decline in asking rentals of 2.1 percent from a year ago, nearly four times faster than the rest of the country.
Rents increased at the same time by 5.4 percent in the Northeast, 4.9 percent in the Midwest, and 0.8 percent in the South.
Another factor contributing to the perception that rent costs are still rising faster than usual is persistently high renewal increases.
However, new-lease rents are still considered a superior leading indicator when assessing prices. When they decline, landlords frequently lower current tenants’ rent to extend their leases.
If landlords lower renewal fees, they avoid having many tenants leave abruptly.
RealPage also noted that, from a peak rate of 11 percent in July 2022 to 6.5 percent last month, the average rise in tenant payments to renew existing leases had decreased this year.
Who is more likely to rent?
Regardless of whether they have children, single persons are more likely to rent than married couples, according to a Harvard University analysis on rental housing for 2022. When compared to white people, residents who are Hispanic, Black, and Asian are more likely to rent than to own homes. Compared to people with salaries of $75,000 and above, those with incomes at or less than $74,999 are more likely to rent than own a home.
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Despite rising prices, renting remains more affordable than buying. In 95% of the 222 U.S. counties examined by ATTOM, a land and property real estate data collector, for its 2023 Rental Affordability Report, the average rent for a three-bedroom residence is still more reasonable than owning a similar-sized home.