A “Now Leasing” sign is displayed in front of an apartment complex in Washington, DC on January 24, 2022.
Stefani Reynolds | AFP | Getty Images
The scorching rental market is finally starting to cool along with the rest of housing.
Rents are still higher than a year ago, but gains are shrinking as landlords lose pricing power in the face of inflation.
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October rents rose 4.7% from October 2021, the lowest annual increase in 18 months, according to Realtor.com. The median US rent was $1,734.
“Our data indicates that we’re finally starting to see some relief from the double-digit pace of rent growth we saw during the height of the pandemic,” said Danielle Hale, chief economist at Realtor.com. “While it is still a bit early to say that we are officially on a downward trajectory for rent prices, the data shows a promising return to normal seasonal downturns and suggests that the astronomical price gains of recent years may be behind it. we.”
A fall survey by Realtor.com found that despite the growing number of tenants struggling to pay rent, the majority of landlords still said they would continue to raise rents over the next year, although within a smaller margin than recently.
Rents are up 23.5% from October 2019, before the Covid19 pandemic hit. The biggest rent increases have been in two-bedroom units as tenants seek more space in the new work-from-home economy.
Annual rent growth has now slowed for nine consecutive months and has been in single digits for three months. But rents are still rising faster than they were just before the pandemic began in March 2020.
Despite fresher gains, more renters are considering moving due to affordability. Of those polled by Realtor.com who had seen their rents go up, 69.5% said they were considering finding something cheaper, up from 66.2% in July.
The survey covers both multi-family and single-family rentals. Other reports show that apartment rents are cooling faster than single-family rents.
Growth in single-family rents has declined over the past five months, but remains in the double digits, according to CoreLogic. Rents rose 10.2% year-on-year in September, the most recent month for which data is available, compared with growth of nearly 14% in April this year, when rental rates interest really took off.
“High mortgage interest rates can encourage potential buyers to take a break and stay renting, which keeps pressure on rental prices,” said Molly Boesel, senior economist at CoreLogic. “However, the monthly change in rents was negative in September, resuming the typical seasonal pattern for the first time since 2019, which could signal the start of a normalization in rental price growth.”
The pressure on multi-family rents is trickling down to both builders and investors. Developer confidence in the multi-family housing market fell sharply in the third quarter of this year, according to a report by the National Association of Home Builders. The report tracks both production and occupancy of apartment buildings.
The number of multi-family units under construction is at its highest level in nearly 50 years and construction spending continues to rise, but developers are starting to see signs of slowing down.
“They cite the high cost of materials and land as well as weakening financing conditions given the Federal Reserve’s recent monetary policy as the main reasons for this decline in confidence, affecting affordable housing projects the most.” , according to the report.
The NAHB now forecasts a significant decline in multifamily construction in 2023.
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