Rental Markets Cooling: Insights for Renters
Rental markets are experiencing a cooling trend, with prices showing a slowdown in growth rather than outright declines, according to experts. Whitney Airgood-Obrycki, a senior research associate specializing in affordable housing at the Joint Center for Housing Studies of Harvard University, notes that this trend indicates a deceleration in growth rather than a sharp drop in rental markets in various locations.
The decline in rent prices is attributed to an increase in supply, creating more vacant properties, while demand slows compared to the peak in 2022. In December, the median U.S. asking rent price decreased to $1,964, marking the third consecutive monthly decline, with a 0.8% drop from the previous year. This data, from real estate site Redfin, includes various property types such as single-family homes, multi-family units, condos/co-ops, and townhouses.
The easing of rents is indirectly linked to new constructions, primarily in higher-end apartment units, which typically command higher asking rent prices. Susan M. Wachter, a professor of real estate and finance at The Wharton School of the University of Pennsylvania, describes this as a “filtering-down effect” that will eventually impact rents across different segments.
While the increase in supply and a decrease in demand are contributing to more affordable rent options, it will take time for these trends to significantly affect rent affordability across various income levels. Most construction is currently concentrated in professionally managed apartment buildings categorized as Class A, B, and C. According to Airgood-Obrycki, the majority of new apartments fall into the Class A category, representing higher-end properties.
The increase in supply of higher-rent Class A units tends to encourage tenants to upgrade to newer units, leveling out prices in these categories and increasing vacancy in Class B and C units. Redfin reports a notable increase in newly built and under-construction buildings compared to a year ago, with the number of completed apartments reaching levels near the highest in over 30 years, and those under construction approaching a new record.
Regional variations are evident, with the South and West regions experiencing cooling prices due to increased new builds, while prices in the Midwest and Northeast remain elevated due to lower availability, according to Redfin’s findings.