U.S. Rents Dropped for Third Straight Month
The reasons behind the decline are well known to the apartment industry.
The median U.S. asking rent fell 0.8% year-over-year in December to $1,964, according to Redfin, marking the third consecutive decline, following a 2.1% annual drop in November, the largest since 2020. There was only a slight dip of 0.3% recorded in October. December rents showed little change, -0.2%, from November.
This decrease in median rental prices is directly linked to vacancies in the market.
The past few years has seen a large increase in building, resulting in a jump in supply in the rental market. Some landlords have been left struggling to fill vacancies, which results in a drop in rent, offering a free month’s rent, or even offering reduced parking costs to attract renters.
There are a few factors for the rising vacancies in the rental market aside from building. Overall economic uncertainty, slowing household formation, and affordability issues are adding to this slowing in the rental market. With new signs that the economy is slowing, individuals may have started watching their personal finances more closely, too.
“If mortgage rates continue to drop at a fast clip in 2024, slowing rental demand could become a major driver of rent declines,” said Redfin Economics Research Lead, Chen Zhao.
As Zhao explains, with a decrease in interest rates, more Americans would have the ability to turn to homeownership, leaving landlords with even more vacancies.
Other factors are well known to the industry: Renters continue to have increased choices, which adds to the increase in vacancies as well. There is an increase in newly built and under-construction apartments in the U.S. from just a year ago. In addition, the number of completed apartments is close to the highest level in more than 30 years. Finally, the number of apartments under construction is close to its record high.
Rental vacancies rose to 6.6% in the third quarter, the highest level since the first quarter of 2021.
However, while rents have fallen in the West and South, the Midwest and Northeast have seen an increase in rents. With the Midwest and Northeast experiencing less building, there is less competition in the rental market. As a result, landlords have less, or no, incentive to drop prices in these areas.
Overall, this report indicates it is an optimistic time for renters, especially in the South or West, in terms of cost, availability, and choice.