Apartment rental price growth is experiencing a significant decline, leading to a shift in the rental market in favor of tenants.
The average of six national rental-price measures, which includes data from rental-listing and property data companies, indicates that new-lease asking rents have risen by just under 2% over the 12 months ending in May. This represents a substantial deceleration compared to the double-digit increases observed a year ago. CoStar Group and RealPage, two data firms, confirm that this is the largest deceleration in recent history.
A potential annual decline in rents would provide relief for millions of renters who have been struggling with skyrocketing rents over the past two years. A decrease in rent would also help ease up inflation, as housing costs constitute a significant portion of the consumer-price index.
However, this decline in rents could pose a problem for investors who take out large loans to purchase buildings with the expectation of continuously raising rents. These investors now face a softer market, falling property values, and doubled interest rates compared to last year.
One rental measure, provided by real-estate brokerage Redfin, already shows a negative trend by asking rents declining by 0.6% in May compared to the same month last year. This data includes both apartments and single-family rental homes.
The rental market has experienced a slowdown after an unprecedented period of growth, particularly in markets like Miami and Riverside, California, where monthly rents have increased by 35% or more in the past three years. High prices started to dampen demand, causing renters to seek alternatives such as moving back in with parents, finding roommates, or relocating to more affordable cities.
The construction of a historic number of new apartments has resulted in increased competition among landlords. Housing analysts predict that this competition will contribute to rent slowdowns, especially in regions like the South and Southwest, where construction activity is most prevalent.
This potential decline in rents follows recent price decreases in the housing market. In April, the national median existing-home price fell by 1.7% compared to the previous year, marking the largest year-over-year price decline in over 11 years.
Information for this story was found via Redfin, The Wall Street Journal, Yahoo News, and the sources and companies mentioned. The author has discussed no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.