Renters, rejoice: While home prices have continued to rise, rents are falling after a major run-up over the last few years. And more relief could be on the way.
The median asking rent in the U.S. fell in December by 0.8%, as compared to the previous year, real-estate brokerage Redfin RDFN, -3.38% said Monday. The median price was $ 1,964. Rents have fallen for three months in a row, the company said, the result of an increase in supply due to a “building boom” meeting demand.
A separate report from Apartment List also said rent growth fell in December by 0.8% nationwide, and noted that the current trends in rent prices are in “sharp contrast to the prevailing conditions of 2021 and 2022.” Rent growth during that period surged to an annual rate of 18% nationally.
To be clear, there is a seasonal aspect to these declines. Rents generally fall in the autumn and winter months, and December is smack in the middle of the off-season. Rents will likely fall for one more month before rebounding, Apartment List said.
Falling mortgage rates could also benefit renters, because some tenants who’ve been waiting on the sidelines of the housing market may now be able to become homeowners, Chen Zhao, economics research lead at Redfin, said.
“If mortgage rates continue to drop at a fast clip in 2024, slowing rental demand could become a major driver of rent declines,” Zhao explained. “That’s because more Americans would ditch the rental market to become homeowners, leaving landlords with even more vacancies.”
A building boom is helping to lower rents
Both Redfin and Apartment List noted that the construction pipeline of new apartments is near record levels.
Based on federal government data, the number of completed apartments in the U.S. is near the highest level in over three decades. That’s in addition to the number of multi-family units under construction being near a record high.
“We expect that there will continue to be an abundance of vacant units on the market in the year ahead,” Apartment List said, which could push rents down further.
The cities where rent growth has slowed the most
The biggest slowdowns in rent growth were reported in the South and the West.
Rents fell in 60% of the nation’s largest 100 cities on an annual basis, and according to Apartment List’s tracker, with the sharpest drops in Oakland, Calif., by 9.3% year-over-year, Huntsville, Ala., by 5.7%, and Atlanta, Ga., by 5.6%.
Rent declines were “especially prevalent” in the Sun Belt, Apartment List noted, with cities like Austin, Jacksonville, Phoenix, and Orlando, which saw year-over-year rent growth rise over 20% in 2021, now seeing rents fall the fastest.
Rents continue to rise in these cities
On the other hand, rents have begun to reverse course in many Midwestern and Northeastern cities.
Redfin noted that median asking rents in the Midwest rose 3.7% and in the Northeast by 1.7%.
“Rents are likely holding up best in the Midwest and Northeast because those regions haven’t been building as much as the South and West, meaning some landlords have less incentive to drop prices because they’re not dealing with as many vacancies,” the company noted.
According to its tracker, Apartment List said that rent growth was the strongest in Lexington, Ky., where the annual rate was 6.4%, followed by Norfolk, Va., at 6.3%, and Fresno, Calif., at 5.5%.
Rents are also rising in big metros like New York City, Boston, and Chicago, according to the company’s data.