Apartment rents fell in every major metropolitan area in the United States over the previous six months through January, a trend that is expected to continue as this year sees the largest delivery of new apartments in nearly four decades.
According to Apartment List estimates, renters who signed new leases in January paid 3.5% less than they would have paid in August of last year. According to the same estimates, it was the first time in five years that rent fell every month for a six-month period.
Four other housing-data company market measures show that new-lease rents fell or remained flat in January compared to the previous month, extending a streak of monthly rent declines that began at the end of the summer.
The rental market is cooling after an unprecedented run for the apartment and home-rental industry caused by the pandemic. Pent-up demand for housing exploded in the months following the release of Covid-19 vaccines in late 2020, and a surge in people looking for apartments increased rents by 25% over two years.
Recent declines indicate that many tenants have reached the limit of how much of their income they can devote to rent, while the threat of layoffs has raised new concerns for some. Other would-be renters, who live with family or friends, are still put off by prices that are far too high for their budgets.
While some seasonal stalling in rents is normal, the market is facing a significant headwind from the largest supply of new supply since 1986, according to CoStar Group projections. This year, nearly 500,000 new apartments will be built as developers seek to capitalize on the high rents that tenants have been paying. Because many renters cannot afford to buy a home due to rising mortgage rates and high prices, rentals have been in high demand.
Rents have fallen in tandem with recent drops in home prices, which fell 3.6% between June and November, according to the S&P CoreLogic Case-Shiller National Home Price Index. Despite a period this year when lower rates sparked an increase in buyer interest, higher mortgage rates and softening buyer demand have been weighing on home prices.
However, where housing inventory remains unusually low—to the benefit of home sellers—the influx of new apartment supply will provide renters with more options, making it more difficult for landlords to raise rents at the rates seen early in 2022, when rent growth was near-20% on an annual basis.
The increased supply may already be having an effect. According to RealPage, the percentage of apartment tenants who renewed their leases fell to 52% in January, the lowest level for that month since 2018. According to the data, some tenants are finding better deals at other buildings.
“Renters facing lease renewals have a lot more options,” said RealPage economist Jay Parsons in a report. Landlords are likely to lower renewal rents in order to keep tenants from leaving, he added.
According to the consumer-price index calculated by the U.S. Bureau of Labor Statistics, housing costs increased 7.9% in January compared to the same month a year ago.
However, the impact of rent decreases tends to lag behind what is reflected in the CPI. Many renters are in the midst of leases that were signed prior to recent price drops.
That is one reason why the rising cost of rent reflected in the CPI continues to show annual price growth that is higher than market measures that track new leases.
According to most data sources, annual rent growth remains positive. However, growth is slowing, and if it continues to slow after winter, it will help to lower headline inflation figures, of which housing costs are a major component.
According to most market reports, new-lease rent growth ranged from about 2% to 6% in January compared to the previous year, a significant decrease from the rate of growth in early 2022. Analysts anticipate that as more leases expire, CPI figures will better reflect the lower costs of new leases.
New-lease rents have fallen most sharply in some of the country’s largest metro areas in the months since August. According to Apartment List, rents in Seattle have fallen 8%, while rents in Boston and Las Vegas have fallen 6%. In January, the median rent in the Seattle metro area was $1,706, while in the Boston metro area it was $1,879.
Other rent measurements using different sample criteria show much higher rent prices, but similar long-term price movement trends.
Notably, none of the 52 largest metro areas tracked by Apartment List saw positive rent growth during this time period.
Rents for single-family homes, which had risen sharply prior to last summer, have also stalled. According to data provider Yardi Matrix, the average national asking rent for a house increased by one dollar in January compared to December to $2,070.
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According to several reports, apartment vacancies have increased since last fall due to lower demand from potential renters. A recent report from listing website Zumper notes that fewer people are flocking to Zoomtowns—communities that experienced a surge in population due to an influx of remote workers—such as Boise, Idaho, or Phoenix than earlier in the pandemic.
Despite a 3.5% drop in new-lease rents since last summer, rents in many cities are still 20% or 30% higher than when the pandemic began. According to an Apartment List report, rents in Tucson, Arizona, Tampa, Florida, and Miami are all 35% higher than in March 2020.
“Renters are still having a harder time than they were even a year and a half ago,” Apartment List economist Chris Salviati said.