According to Redfin, the median U.S. asking rent in September saw a modest year-over-year increase of 0.4%, reaching $2,011. This marks the sixth consecutive month with little change in rents compared to the previous year. Before this, the rental market had experienced a rapid slowdown in growth, settling back to more normal levels after a surge in prices during the pandemic. Notably, the median asking rent dropped by 2% from the preceding month in September.
Redfin Economics Research Lead, Chen Zhao, explains,
“Rents have plateaued due to a surge in apartment construction in recent years, flooding the market with supply. However, they haven’t experienced a significant decline because rental demand remains, especially given the high mortgage rates deterring potential homebuyers and sellers. There’s still a substantial number of apartments under construction, which is expected to keep rent increases minimal in the near-to-medium term. Yet, construction has begun to slow down, which could eventually strengthen rental prices.”
While the number of completed apartment buildings in the U.S. surged by 32% year over year to a seasonally adjusted annual rate of 433,000 in August, a more recent trend shows a 41% year-over-year decline in apartment construction starts, with a seasonally adjusted annual rate of 334,000. This slowdown in construction starts is a leading indicator of what’s happening in the housing market, whereas completed buildings are a lagging indicator.
Despite the construction slowdown, landlords are facing increased competition as new rentals continue to enter the market. Some of this competition comes from individual homeowners opting to rent their homes instead of selling, often due to the desire to keep their low mortgage rates or due to unattractive offers.
The rental market’s softening has led to some landlords offering concessions, such as a free month’s rent, to attract tenants without officially reducing the listed rental prices.
In terms of regional variations, the Midwest experienced a 5% year-over-year increase in median asking rent, reaching a record of $1,436. The Northeast also saw an increase of 3.1% to $2,482. However, the West witnessed a 1.6% decrease to $2,413, and the South declined by 0.3% to $1,653.
The cooling of rental markets in the West and South can be attributed to their outsized rent growth during the pandemic, particularly in Sun Belt cities like Phoenix, Miami, and Dallas. Once the rental boom in these areas subsided, there was more room for price adjustments. Additionally, robust apartment construction in the Sun Belt contributed to the rental market’s slowdown, and tech layoffs likely played a role in the sluggish rental market in the West. Despite these regional variations, rental markets in the West and South have started to stabilize in recent months as the impact of the pandemic’s rental price surge moves further into the past, and layoffs begin to ease.
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