June Housing Market Sees U.S. Residential Asking Rents Remain Near Historic Highs

Redfin, a national property broker, reports a slowdown in the U.S. residential rental market for over a year. However, the median asking rent in June 2023 is only $24 below its record high, standing at $2,029. This figure remains largely unchanged from the previous month, the preceding year, and the highest recorded rent in August 2022, which was $2,053.

In terms of percentages, rents rose by 0.5% year over year in June, with a slight improvement from the 0.6% annual drop in May. Rents also increased by 1.7% from the previous month in June.

Redfin Deputy Chief Economist Taylor Marr explains that the housing market tends to be “downside sticky,” meaning rents do not typically decrease significantly even when renter demand weakens. Instead, landlords often offer incentives such as a free month’s rent or discounted parking, which has a lesser impact on profits.

Marr continues by stating that the considerable slowdown in rent growth over the past year has brought some relief to renters, allowing them more negotiation power as landlords struggle with rising vacancies. However, despite the slowdown, rents remain near their record high, so most renters are not finding substantial bargains.

While the slowdown in rent growth has not had a significant impact on many renters, it has helped alleviate the historic inflation affecting U.S. consumers. Recent data indicates that consumer prices increased by 3% through June, a slowdown from the 4% reported in May and the peak of approximately 9% last summer. The cost of shelter, primarily including rent, rose by 0.4% on a seasonally adjusted basis in June, a notable decrease from the 0.8% at the end of last year. As Redfin’s rental data typically lags behind inflation data, this inflation slowdown is largely due to the deceleration in rent growth over the past year.

Redfin Economics Research Lead Chen Zhao predicts that inflation will continue to ease throughout 2023 and into 2024. This is partly because the recent slowdown in rent growth has not yet fully impacted inflation data and partly because rents have the potential to decrease. The rental market still has a backlog of under-construction rentals that have yet to enter the market, which means landlords will continue to face vacancies and be unable to rapidly increase rents.

Rent growth has moderated from its peak in 2022 due to various factors. Economic uncertainty and slower household formation have contributed to fewer people moving, while the rental market has seen a surge in available options for tenants. In May, completed residential projects in buildings with five or more units increased by 23.9% year over year to a seasonally adjusted total of 493,000. Consequently, landlords are facing more vacancies and less flexibility in raising prices.

Although there has been a rise in rentals due to increased homebuilding activity, the pace of growth is slowing down. The number of permitted residential projects in buildings with five or more units declined by 12.2% year over year to 540,000 on a seasonally adjusted basis in May. Building permits, which indicate upcoming construction projects, serve as a leading indicator for the housing market. On the other hand, completions act as a lagging indicator.

In June, the Northeast saw a record median asking rent of $2,503, marking a 4.3% year-over-year increase. By comparison, asking rents in the Midwest rose by 3.7% to $1,396, in the South by 0.8% to $1,670, and in the West, they fell by 0.3% to $2,452. While rent prices continued to climb in many parts of the country, the growth rate was significantly lower compared to previous peaks.

Rent growth has been decelerating at the fastest pace in the West and South, primarily because it had accelerated rapidly during the pandemic in Sun Belt cities such as Phoenix, Miami, and Dallas. Now, as supply catches up with demand, these regions have more room for rent prices to cool down.

However, despite a slight decrease in rents compared to the previous year in certain areas, affordable rental opportunities remain scarce. In San Francisco, for instance, although there are reports of a plunging housing market, people are still willing to pay $4,000 per month in rent. This is particularly true for many tech workers who initially left the Bay Area during the pandemic for cities like Austin but are now returning due to pay cuts or office relocations mandated by their employers.