Tenants are holding on to their units with tight fists as the rental market swings back in their favor.
Net demand for apartments was negative in 2022 for the first time since 2009, Jay Parsons, the chief economist at the property-management software company RealPage, said in a report Thursday — a sharp contrast from the searing, record-breaking demand of 2021. Blame depressed consumer confidence and renters wary of making moves amid high inflation and a potential economic downturn, which could coincide with bigger rent cuts.
“We’ve never before seen a period like this — weak demand for all types of housing despite robust job growth and sizable wage gains,” Parsons said in the report. “It wasn’t just apartment demand that shot up in 2021 and plunged in 2022. The same pattern played out to varying degrees in other rentals and in for-sale homes.”
Still, Parsons rejected several “myths” surrounding the trend: There’s no wave of turnover or unpaid rents contributing to weaker demand, he said, since move-outs are normalizing but remain low, rents are largely being paid on time, and renters don’t appear to be “doubling up” on a large scale or fleeing their pricier apartments for cheaper shelter.
And it’s possible that apartment demand will rebound later this year, Parsons said, considering a missing “seasonal bounce” from employed college graduates looking to rent in 2022 — which may be related to those young adults moving back in with family or friends to avoid risk.
That demand could resurface if inflation cools further and landlords cut rents, which Parsons said is likely to happen early this year, particularly for the high-end apartments that’ll be competing with all the new buildings coming online. Supply is set to reach its highest level in decades, Parsons said, with more than half a million units scheduled to finish construction this year.
But for now, demand for apartments remains weak — so much so that new-lease rents were down in December for the fourth straight month, Parsons said.
“While rent cuts in the winter months are seasonally common, the cumulative rent drop of about 1.6% since September is deeper than normal,” Parsons said.
Vacancy rates are also increasing in the vast majority of the country’s biggest metro areas, with national vacancy rising from last year’s record seasonal low of 2.5% to 5% in December, he added.
“For calendar year 2022 overall, effective new lease asking rents increased 6.1% nationally. That number was inflated by large hikes earlier in the year but has dropped off precipitously since peaking at 15.7% in March,” Parsons said. “Further cooling will continue into 2023.”
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