Have rental prices finally reached their peak? Average rents have risen sharply across the country since the start of the pandemic, rising by 24% nationally and more than 40% in some markets, helped by inflation and changing demographics.
However, maybe things will get better in the end. The apartment listing has released its National Rent Report for November 2022, and the results will perhaps make many breathe a sigh of relief.
According to List of apartments, their national rent index fell 0.7% in October. This decline marks the second consecutive drop from the previous month and the largest single-month drop in the history of the index since 2017.
The results indicate a rapid cooling of the rental market; however, the recovery time is in line with the seasonal trend already present in the pre-pandemic years. Luckily for renters’ budgets, prices are likely to continue to fall as we enter the winter season, which has historically been a slow rental market.
Despite the downturn, rent growth in 2022 is still outpacing pre-pandemic growth, although it has slowed significantly from last year’s peaks. This year, rents have risen nationwide by 5.9% compared to a staggering 18% at the same time last year.
YOY growth has been slowing since the beginning of the year, but it is likely that 2022 will still be the second fastest growth year since the index was launched.
Cooling of growth occurs simultaneously with the continued weakening of supply in the market. The list of flats vacancy index is now 5.5%. Over the past couple of months, the vacancy rate has risen again after stabilizing in the summer.
The recent slowdown is not limited to one part of the country. The country is going through this recovery period, which could make life easier for those looking to relocate to notoriously high-rent cities like New York and Los Angeles.
Boise, Idaho, was one of the first rental markets to explode early in the pandemic, and the city is already seeing a sharp decline.
Other cities, such as Las Vegas, Jacksonville, Phoenix and Riverside, have seen rents rise 30% since March 2020, but none of those cities has risen more than two percent in the past twelve months.
Much of the 2021 rental boom can be attributed to a tough market in which households compete for a diminishing number of apartments, according to the Apartment List. The website’s job index topped 7% in the early months of the pandemic as many Americans tried to consolidate their households and move in with family.
After that, the turbulent household led to a sharp tightening of the vacancy rate, which fell to 4.1% last fall. After bottoming out in October 2021, the job index showed a “gradually weaker” trend.
The rate of decline in the vacancy rate has accelerated over the past few months as rent growth turned negative. The indicator rose by 0.2% from April to August, from 5.1% to 5.3%. From August to October, the index rose by 0.4%, bringing it to 5.5%.
After an extended period of aggressive rent growth coupled with rising non-housing costs, Americans seem to be moving with family or roommates, or hesitant to move on their own.
The slowdown in household formation is the driving force behind the cooling, which is manifesting on both the supply and demand side of the market.
In 89 of the 100 largest cities in the country this month saw a reduction in rent. In two cities, rents remained unchanged, and only in nine did they increase. Across the board, nearly all local rent growth has slowed since last year. In 96 out of 100 cities, year-to-date rent growth in 2022 was slower than in the same months of 2021.
The most significant decline occurred in Boise, Idaho, where residents saw rents fall 3.5% between September and October. Boise was the first example of a pandemic-induced rent violation. Prices peaked in August last year, when rents rose by a shocking 46.5% from March 2020 levels.
Since then, the market has cooled down substantially, with prices up just 36.6% from the March 2020 benchmark. Other cities that saw the sharpest declines from the previous month include Pittsburgh, Seattle, Detroit and New York. In these cities, prices have fallen by more than 2% this month.
The Midwest is still growing
The markets that posted the most growth since the pandemic were in the Sun Belt. But the Midwest recorded the fastest rent growth in six months. Prices in the Sun Belt have risen so exponentially during the pandemic that the Midwest may now represent the last affordability area in terms of rent.
The renewed interest in the Midwest could spell the doom of their historically affordable prices in both the rental and housing markets.
San Francisco’s heaviest hit
The San Francisco area saw its sharpest rent decline in the first year of the pandemic, and the market has been the slowest to recover since. As some of the highest paying jobs in the country have shifted to telecommuting, many have jumped at the opportunity to find cheaper rent elsewhere. The Bay Area saw a 1.1% decline in October and a 1.9% decline since August.
In the city, some markets are recovering even more slowly. This drop has sent median metro rentals below March 2020 levels. This trend is most popular in more densely populated central cities.
Rents in Oakland are still down 12.2% from March 2020, while rents in San Francisco itself are down 9.7%.
Although rents are declining in most markets across the country, growth rates in 2022 are still higher than in pre-pandemic years.
Realtor.com chief economist Daniel Hale expects elevated inflation and rising rents to continue into 2023 as the Federal Reserve struggles to raise interest rates fast enough to keep things under control. “I expect rent growth to slow down, but we may not see it return to what was typical before the pandemic,” she says.
Andrew Herrig is a financial expert and financial nerd, and the founder of Wealthy Nickel, where he writes about personal finance, part-time jobs, and entrepreneurship. As an avid real estate investor and owner of several businesses, he has a passion for helping others create wealth and shares his family’s experiences on his blog.
Andrew holds a Master’s degree in Economics from the University of Texas at Dallas and a Bachelor of Science degree in Electrical Engineering from Texas A&M University. He has worked as a financial analyst and accountant in many aspects of the financial world.
Andrew’s expert financial advice has been featured on CNBC, Entrepreneur, Fox News, GOBankingRates, MSN and more.