The last few years have been red-hot in the rental market. Between early 2021 and late 2022, average rents climbed from just over $1,500 per month to above $2,000. At one point, they’d surged 17% in just a single year.
Fortunately, it looks like renters are beginning to get some much-needed relief. Case in point: According to Zillow, rents steadily declined each month between October and January. While they did see a slight bump in February — just 0.3% — the increase pales in comparison to the 2% month-over-month uptick since just last summer.
“We can officially say that renters are on their way to having the upper hand once again,” says Michael Lucarelli, CEO of rental application platform RentSpree. “Landlords will likely begin to minimize rent increases to prevent tenants from leaving. This can also give renters far more negotiating power than before.”
It’s good news for renters, of course, but what’s changed? And more importantly, is it here to stay? Here’s what experts — and the data — have to say.
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What’s Changed in the Rental World?
The national average rent currently clocks in at $1,976 — not a huge dip from the peak seen in September, but a 0.5% dip nonetheless. On top of this, the annual growth rate of rents — or how much rents are up compared to the same time a year ago — is down 10 percentage points from last February.
While the numbers might not seem like a stark difference, any positive change is a boon to renters, who have struggled with skyrocketing rents for years now.
“When we look at the rental market, we can surely see it is softening in many prominent markets across the U.S.,” Lucarelli says. “This is good news for all renters. After months of steep competition and higher rates … rent rates falling have been long awaited.”
According to Bob Pinnegar, CEO and president of the National Apartment Association, there are two major factors driving this shift in the rental market.
“This is spurred by both a boost of new housing supply starting to come online and the easing of some economic challenges — namely inflation and supply chain issues,” Pinnegar says.
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On the supply front, Pinnegar is right: Things are starting to shift drastically. The U.S. is set to gain almost 600,000 new apartments this year alone, and in January, a whopping 563,000 multifamily building permits were issued, per the U.S. Census Bureau.
That doesn’t even include the influx of single-family rentals set to hit. These will come largely by way of built-for-rent communities, which have been growing in popularity. The National Association of Home Builders found that single-family built-for-rent construction was up 33% in 2022.
“With interest rates still high, those who are unable to afford to purchase a home are still in the rental market,” says Jordan Davey, marketing manager and partner at Victory Property Management in Raleigh, North Carolina. “Builders are seeing this and, unable to sell their homes, are deciding to put their energy into building or converting these built homes into rental real estate. So what we’re seeing here is basic supply and demand. The supply of rental homes will steadily increase over the year, causing rental rates to drop even more than they are currently.”
As the year goes on, that extra supply should also lead to more listing choices for renters and, unless demand increases as well, more concessions on the part of landlords.
“Renters are going to find that this year will be one of the easiest years to find a home than in the last four,” Davey says. “The supply of quality homes — even new construction homes — is going to increase dramatically. With so many available homes towards the end of summer and going into fall and winter, renters wont feel the need to waste their hard-earned money on multiple applications and can be choosier on quality and location.”
[READ: How Landlords Can Legally Raise Rent.]
What’s Next?
Real estate is local, of course, so not all markets will see these same trends. In Cleveland, Ohio, for example, rents are down a full percentage point from last month. Hartford, Connecticut, on the other hand, has rents moving in the other direction — notching a 1.3% increase since January.
As Luccarelli explains, “Softening depends on the market, and the softening we see in one market won’t look or behave the same way as another.”
Still, experts largely expect things to keep trending in renters’ favor. While it won’t mean a major drop-off in rents in most places (according to NAA, the U.S. needs about 3.7 million new apartments by 2035 to fully meet demand), it should make things a little bit easier — and more affordable — as the year goes on.
“Lease-up from new construction has become increasingly difficult, and concessions for newly completed properties are up,” says Lu Chen, a senior economist at Moody’s Analytics. “This will continue as we progress through 2023, especially given the potential record number of completions coming to market in this year. Overall, supply growth will put downward pressure on the market and push rent growth to, or even below, its long-run average.”
This isn’t set in stone, of course, and it all depends on those thousands of new units hitting the market. According to Pinnegar, widespread layoffs, supply change issues and more stringent government regulations could throw a kink in things.
“Renters will likely continue to see a reprieve from the historic increases that followed the apartment demand spike following the COVID-19 pandemic, especially if more tangible progress is made to boost the supply of critically needed housing at all price points,” Pinnegar says. But, he adds: “We can’t lose sight of the bigger picture: the U.S. must address the supply-demand imbalance to improve housing affordability, and policymakers at all levels of government must reduce barriers to apartment construction.”
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Is the Rental Market Finally Softening? originally appeared on usnews.com
