Apartment rent growth in the United States is declining fast, after years of soaring prices.
The decline in rents are giving many millions tenants relief for the first time since the early months of the pandemic, partially due to the increasing amount of apartments on the market.
Rental prices may start to ease more this year, as fewer people move due to economic uncertainty, persistently high rental prices, and rising inflation.
Early last year, renters faced an increase in rent nationwide by an average of 25 percent since the second half of 2020.
By the second half of 2022, the high rental prices eventually weakened demand, as many potential renters were pushed out of the market.
Rent Prices Continue to Drop
The Wall Street Journal reviewed the top average national rental price estimates on June 13 and found that new-lease asking rents rose about 2 percent over the 12 months ended in May.
This is a change from the double-digit price increases in 2022 and the largest decline in recent years, according to data from CoStar Group and RealPage.
The financial crisis of 2008–09 and the brief dip during 2020 pandemic were the last times asking rents fell over a a 12-month period.
Although housing costs are one of the biggest three components of the Consumer Price Index, a decline in rents are also a factor in inflation.
In 48 out of the 100 largest U.S. cities, there has been negative rent growth for new leases, as multifamily-building values fell nationwide, according to Apartment List.
An annual drop in new rent prices could hit some investors financially, after many took out major loans to buy buildings at a time when landlords were still raising prices.
Some investors who bought apartment buildings with the intention to raise rents are now facing a changing reality, especially in the Southwest, where many are experiencing financial losses.
Apartment Construction Boom Alleviating Rents
Meanwhile, a boom in newly built apartments is leading to an increase in rental supplies, while economic uncertainty is beginning to cool demand, according to the real-estate brokerage Redfin.
This is expected to foster more competition among landlords and decelerate rent increases in parts of the country like the South and Southwest, which are undergoing a building boom.
The increase in new apartments may also give landlords less freedom to raise rents, as many are already grappling with a rise in vacancies, now that potential tenants have more options to choose from.
Rents have since declined nationwide by 1 percent from May 2022, the largest drop since in over three years, partially because of the increase in unit stock, according to Redfin.
The brokerage also reported that asking rents fell year over year by 0.6 percent in May, to $1,995, the largest annual decline since March 2020, when the pandemic was declared.
This is comparison to the near-record 16.5 percent increase from a year ago, while the median asking rent rose 1.4 percent from a month earlier in May.
Another reason why rental supply is expanding is because many homeowners are opting to rent out their homes instead of selling, according to Redfin.
Landlords Asking Less From Tenants to Renew Leases
The decline in rental prices have been uneven geographically, like in the West, where asking rents declined 2.1 percent from a year earlier, nearly four times the national pace.
At the same time, rents in the Northeast climbed 5.4 percent, 4.9 percent in the Midwest, and 0.8 percent in the South.
Persistently high renewal increases are another reason why rent prices are still appearing to be rising at a higher-than-normal rate.
New-lease rents, however, are still considered to be a better leading indicator in measuring prices, because when they go down, landlords tend to reduce the amount existing tenants pay to renew their leases.
Landlords face the risk of large numbers of tenants leaving in droves if they fail to ease renewal fees.
RealPage also reported that the average increase in tenant payments to renew existing leases fell this year, from a peak rate of 11 percent in July 2022 to 6.5 percent last month.
“There’s certainly a correction taking place,” said Rob Warnock, a researcher at Apartment List, which recently reported a less than 1 percent increase in rent nationwide in May.
