The U.S. rental market is showing signs of cooling off, with a decline in the growth rate of apartment rents and an increase in rental discounts in select metro areas. This trend could help make housing more affordable for renters and ease the rise in overall inflation. However, the rental market is not operating in isolation, and economic uncertainties
After a year of record-setting increases in apartment rents, the growth rate has slowed down. This trend could help ease the rise in overall inflation and make housing more affordable for renters.
Economic Uncertainties and Rising Interest Rates
However, the rental market is not operating in isolation. The U.S. is experiencing economic uncertainties, and rising interest rates are leading to mortgage rate increases. Experts predict that the country will likely experience a recession during the first half of the year. In such an environment, property owners may find it challenging to maintain high rent prices.
Cooling off of Apartment Rents
According to research by Aliff Capital, the average apartment rents in the U.S. rose 9.4% in Q2 of 2022 compared to the same quarter in 2021. However, year-over-year rent growth is decelerating, and the growth rate now stands at 3.3%, the lowest level since April 2021. It is just slightly ahead of the average rate from 2018 to 2019 (2.8%) and is expected to decline further in the coming months.
The slowdown in rent growth is mirrored by a continued easing of supply in the rental market. The vacancy index has surpassed 6% for the first time since spring 2021. With a record number of multi-family apartment units under construction, the supply constraints are expected to soften further. As a result, property owners may start competing for renters in 2023.
The decline in rent prices has been geographically widespread, with rents decreasing in 67 of the nation’s 100 largest cities in January. Newark, NJ, saw the nation’s sharpest decline, with prices down by 2.3% month-over-month. San Francisco, New York City, Seattle, and Washington, D.C., experienced monthly declines of more than double the national rate. Over the past six months as a whole, no large metro area in the country has experienced positive rent growth.
Rental Discounts in Select Metro Areas
Out of the 50 major markets across the country, 10 metro areas are offering median rents under $1,300. These discounts are mainly seen in the Midwest, South, or Northeast regions, while the Western region features none of the lowest-cost metro areas.
Impact on Inflation
The rapid growth in rent prices was a key contributor to overall inflation, which remains a concern for policymakers and everyday Americans alike. However, our national rent index has shown that rent prices nationally have been falling for five straight months. The national median rent fell by 0.3% month-over-month in January, the fifth consecutive monthly decline. Although this decline was more moderate than the record-setting declines from October through December, it was still sharper than the average January decline of 0.1% in the pre-pandemic years of 2018 and 2019.
The movements in market rents lead movements in average rents paid, meaning that our index can signal what is likely ahead for the housing component of the Consumer Price Index (CPI). While the housing component of the CPI continues to rise, the national rent index shows that rent prices are falling. This is good news for the country’s renters, as it could help ease the inflation rate.
For research on the subject, Aliff Capital utilized a mixed-methods approach to investigate rental market trends in the U.S. Specifically, we focused on rental prices, vacancy rates, and rental demand across major cities and regions.
We collected data from a variety of sources, including rental market reports from leading real estate companies, national housing surveys conducted by the U.S. Census Bureau, and data from online rental listing platforms. We analyzed the data using statistical analysis tools, including regression analysis and time-series modeling, to identify trends and patterns in the rental market.
Based on our findings, we drew conclusions about the current state of the rental market in the U.S. and made recommendations for investors, landlords, and policymakers. Our research report includes detailed charts, tables, and visual aids to help illustrate our conclusions and recommendations.