A “Now Leasing” sign is displayed in front of a building in Washington, DC, on January 24, 2022.
Stephen Reynolds | AFP | Getty Images
The red-hot rental market is starting to cool along with some real estate.
Rents are still higher than they were a year ago, but profits are shrinking, as landlords lose pricing power in the face of rising prices.
Rents in October rose 4.7% compared to October 2021, the slowest annual increase in 18 months, according to Realtor.com. The median US rent was $1,734.
“Our findings show that we’re starting to see some relief from the rent growth we experienced during the height of the pandemic,” said Danielle Hale, chief economist at Realtor.com. “While it’s too early to say we’re in a downward spiral of rental prices, the data shows an encouraging reversal of the recession and suggests that the skyrocketing price gains of the past few years may be behind us.”
Realtor.com’s fall survey found that while many renters are struggling to make rent payments, most landlords said they will continue to raise rents next year — albeit by a smaller margin than they have recently.
Rents are up 23.5% since October 2019, before the Covid19 pandemic. The biggest rental gains were in two-bedroom apartments, as renters looked for more space in the new home-based economy.
Annual rent growth has been slow for nine straight months and has been in the single digits for the past three months. But the rent is growing faster than before the pandemic, in March 2020.
Despite the cool benefits, many renters are considering moving because of affordability. Of those surveyed by Realtor.com who saw their income increase, 69.5% said they were considering getting a lower price, up from 66.2% in July.
The survey covers both multi-family and single-family households. Some reports indicate that rental properties are cooling faster than single-family rentals.
Single-family rental growth has been slowing for the past five months, but remains at a double-digit rate, according to CoreLogic. Rents rose 10.2% year-on-year in September, the most recent month for which data is available, down from about 14% growth in April this year, when interest rates began.
“Higher interest rates can cause homebuyers to give up and stay on as renters, putting upward pressure on rents,” said Molly Boesel, chief economist at CoreLogic. “However, monthly rent changes were negative in September, resuming normal trends for the first time since 2019, which could signal the beginning of a rebound in rental prices.”
The pressure on multifamily rent is coming down to developers and investors. Developers’ confidence in the multi-family housing market has fallen sharply for the third consecutive year, according to a report by the National Association of Home Builders. The report shows the production and number of residential buildings.
The number of multifamily units under construction is at its highest level in nearly 50 years, and construction costs continue to rise, but developers are beginning to see signs of slowing.
“They cite rising property and real estate prices and the weakening of the economy due to recent Federal Reserve policy as the main reasons for this decline in confidence, which is particularly affecting affordable housing,” according to the report.
The NAHB now projects a significant decline in multifamily construction in 2023.