Apartment rents fall as new supply hits market

Apartment rents have fallen in all major U.S. metropolitan areas in the past six months through January, a trend that is expected to continue as the largest delivery of new apartments in nearly four decades is expected to arrive. This year.

Tenants with new leases in January paid a median rent 3.5% lower than they would have paid last August, according to estimates from the Apartment List listing site. It was the first time in five years that rents fell every month over a six-month period, according to the same estimates.

Four other market measures by housing data firms also show rents for new leases falling or holding steady in January from the previous month, extending a series of monthly rent declines that began in late January. the summer.

The slowdown in the rental market follows an unprecedented run for the apartment and home rental industry set in motion by the pandemic. Pent-up demand for housing skyrocketed in the months after the introduction of Covid-19 vaccines in late 2020 and a surge in the number of people looking for apartments has driven rents up 25% over two years.

Now recent declines are a sign that many tenants have maxed out the share of their income they can spend on rent, while the specter of layoffs has created new worries for some. The other prospective tenants, living with family or friends, remain marginalized by prices that are still far too high for their budget.

While some seasonal dip in rents is normal, the market faces a significant headwind in the biggest delivery of new offerings since 1986, according to CoStar Group projections..

Nearly half a million new apartments will come online this year as developers seek to cash in on the high rents tenants have paid. Many renters cannot afford to buy a home due to higher mortgage rates and high prices, so rentals have been in high demand.

The opening of these new units will give tenants more choice, making it harder for landlords to increase rents at the rates seen in early 2022, when rent growth was nearly 20% per year.

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The new offer may already have an impact. The share of apartment renters who renewed their leases fell in January to 52%, the lowest level for that month since 2018, according to property management software firm RealPage. The data suggests that some tenants are finding better deals in other buildings.

“Tenants facing lease renewals suddenly have a lot more options,” RealPage economist Jay Parsons said in a report. Landlords will likely start lowering their renewal rents to keep tenants from leaving, he added.

Housing costs rose 7.9% in January from the same month a year earlier, according to the consumer price index calculated by the US Bureau of Labor Statistics. But the impact of rent cuts tends to be less than what is expressed in the CPI. Many tenants are in the middle of leases signed before recent price cuts. This is one of the reasons why the rising cost of rents reflected in the CPI shows annual price growth that is still higher than market measures, which track new leases.

Measured annually, rent growth remains positive, according to most data sources. But the pace of growth is slowing, and if it continues to slow beyond the winter, that would help lower headline inflation numbers, of which housing costs are a major component.

Rent growth for new leases ranged from around 2% to 6% in January year-on-year, according to most market reports, down significantly from the pace of growth in early 2022. As more leases expire, analysts expect the CPI numbers to better reflect the falling costs of new leases.

Rents for single-family homes, which had also risen sharply before last summer, are also stagnating.


Gene J. Puskar/Associated Press

In the months following August, rents for new leases fell most sharply in some of the nation’s largest metropolitan areas. Seattle rents fell 8%, while Boston and Las Vegas rents fell 6%, according to Apartment List. Notably, none of the 52 largest metropolitan areas tracked by the company experienced positive rent growth during the period.

Rents for single-family homes, which had also risen sharply before last summer, are also stagnating. The national average asking rent for a home rose just $1 in January from December, to $2,070, according to data provider Yardi Matrix.


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Vacant units have increased since last fall, according to several reports, due to weaker demand from potential tenants. Fewer people are flocking to “Zoomtowns” – communities that have seen a population spike due to an influx of remote workers – like Boise, Idaho or Phoenix compared to the start of the pandemic, notes a recent report from the site. Zumper SEO web.

Even after a 3.5% drop in new lease rents since last summer, rents in many cities are still 20% or 30% higher than they were at the start of the pandemic. Rents in the Tucson, Arizona, Tampa, Florida and Miami metro areas are all 35% higher than March 2020, according to a report from the apartment listing.

“Tenants are struggling even more than a year and a half ago,” said Chris Salviati, economist at Apartment List.

Rents in many Sunbelt cities such as Miami Beach, Florida remain higher than before the pandemic.


Marco Bello for the Wall Street Journal

Write to Will Parker at will.parker@wsj.com

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