Small Apartment Landlords Eye Rent Increases This Year

Many tenants who were considering the purchase of a home have been forced to postpone their dreams because increased rents are preventing them from saving for a downpayment – a problem compounded by high interest rates. At the same time, despite an influx of new inventory, rental demand is still so high that independent landlords are not feeling pressure to lower rents significantly.

These are the findings of a new Realtor.com Avail survey of landlords and renters. “Independent landlords” refers to those who typically own 20 units or less. They own and manage about three-quarters of all the rentals in the U.S., according to Sara Wiskerchen, Realtor.com’s director of corporate communications.

“The surge in rents and the sheer number of renters, many of whom have held off on buying in recent years, continue to minimize any potential price impacts that increased rental inventory could have on the market,” said Danielle Hale, the company’s chief economist. “The median asking rent in 2024 is expected to drop only slightly below its 2023 level (-0.2%).”

The survey revealed that 60% of independent landlords instead intend to raise rents in the next 12 months – compared to 65% who planned to do so in 1Q 2023. In seven out of 10 cases, how much they do so depends on whether the leases are renewals or new. Most landlords who differentiate increase rents by 0-5% for renewals, and by up to 10% for new leases. Half of those who raise rents uniformly plan to hike them by 0-5%.

A majority of landlords (60%) complained about ownership costs they said increased by more than 10% in the past year, with many planning to pass the costs on to their tenants. Of those who don’t plan to raise rents, 72% say their unit is already leased at or above the going rate. Only 22% of landlords planned to buy other rental properties this year – but 75% also don’t intend to sell.

From the renters’ perspective, 71% said their rent went up when they renewed most recently. The average lease was $1,000 – $1,500 a month, but more renters than in previous surveys said they were paying upwards of $1,000 – $2,000 a month. Future hikes were anticipated by 35% of tenants, with 38% unsure. There was a 6% increase in renters who intended to stay put but were trying to negotiate lower rates. “This may be especially true in 2024 as higher rental vacancy rates may mean landlords are more interested in securing renewals,” the survey commented.

High rents and risk of future increases have driven two-thirds of tenants to investigate other housing options, it noted, though there was a slight drop in the percentage considering a home purchase.

The challenges for home buyers are revealed in a February 8 report from Redfin that found pending home sales have posted their biggest decline in four months. On February 2, daily average mortgage rates rose by the highest amount in over a year, with the median monthly mortgage payment up 11.5% to $2,607 year over year at a 6.63% rate, Redfin reported.

Even so, the company’s Homebuyer Demand Index shows that some would-be homeowners are exploring the market, though fewer than expected. The index, which measures requests for tours and other homebuying services, is down 14% compared to a year ago.

Rising home prices are also discouraging potential buyers. In the same period, the median home sale price rose 5.4% to $361,498 and the median asking price shot up 7% to $395,949. Indeed, pending home sales slumped 7.8% in the year to 68,872. New listings rose 6.6% but active listings slipped 3.5%. Mortgage-purchase applications are down 19% from the previous year, the Mortgage Bankers Association reported.

On the positive side, there was a two-day decrease in the median number of days a house stayed on the market, and a 2.4% increase to 22.4% in the share of homes sold above list price. Nationally, median sale prices fell in two metros, pending sales rose in 5 metros, and new listings slumped in 14 metros, Redfin reported.