We have rarely seen anything quite like last year’s nationwide rent trajectory other than a roller coaster ride for FTX and Terra coins.
see for yourself.
Of course, this only shows year-over-year changes, not the rents themselves. Despite the dramatic turnaround around March last year, rents are still rising year-on-year. That said, rents have reached an inflection point where they begin to fall month-over-month, even in nominal terms.
As Realtor.com Note,
“In November 2022, the U.S. rental market experienced a fourth straight month of single-digit growth after a ten-month slowdown from a peak of 17.4% growth in January. Rents in the top 50 metropolitan areas The median rate of increase slowed to 3.4% year-over-year for 0-2 bedroom properties, the lowest rate of growth in 19 months. The median asking rent was $1,712, down $22 from last month and down $69 from the peak. However, it is $308 (21.9%) higher than during the same period in 2019 (pre-pandemic). ” [Emphasis mine]
When inflation is factored in, the decline becomes even more intense.
moreover, “Builders Strike”as I call it, “home shopping plans may also be postponed, further boosting rental demand”. .
“On the supply side, the number of rental properties may increase over time as housing construction activity continues to shift to multifamily housing. It could lift low rental vacancy rates and help curb recent rental growth caused by excess demand.”
To get an idea of how dramatic this shift has been, compare the fastest metro-level rent growth in the top 10 cities over the past six months, 12 months, and since the pandemic began. List of apartmentsIt has grown from 37% (Tampa) since March 2020 to 7% (Indianapolis) in the last 12 months and 1% (Indianapolis) in the last 6 months.
If the fastest growing metropolitan area is growing at 1%, you know all there is to know.
For comparison, the worst-performing market over the past six months was Providence, Rhode Island, at -6%. The worst since March 2020 is -5% in San Francisco, which is Mainly due to local factorsIn fact, San Francisco is one of two markets with negative rent growth since March 2020 and one of five markets with less than 10% positive rent growth. .
why is this happening?
Part of this is just seasonality. Both prices and rents tend to drop a bit in the winter.But this is a much bigger drop than normal seasonality predictsThat’s not all.
Property prices were soaring before the Fed started raising interest rates due to various factorsmost notably historically low interest rates and Nationwide large-scale housing shortage It was the result of a decade of poor housing construction. That supply shortage was then exacerbated by delays caused by Covid and lockdowns.
The housing shortage has affected the rental market as much as it has affected the condominium market. However, when interest rates rose, a “seller’s strike” began and new listings dropped dramatically. Unlike in 2008, most homeowners today take advantage of his 30-year fixed loan with low interest rates. Very little incentive to sell.
One of the first pieces of advice is I gave Given that there was this new and very strange market,[I]If you own your home and have to move for work or other reasons, selling your home is not a good idea. “A house with an interest rate of 3% or less on his should not be sold or refinanced.
“Instead, it makes more sense to rent out your current home and rent out where you’re moving to (assuming it doesn’t make sense or you can’t afford to buy there).”
It turns out that many people accepted this advice or had similar thoughts. We’ve noticed a surge in the number of rental listings for both single-family homes and apartments on the market. That seems to be the case all over the country.
In addition, while paying rent to a new list Although it increased by more than 15% from one year to the next, it was nowhere near the increase in rent the average tenant had to pay.As NPR It pointed out“According to government consumer price data, the average rent Americans are actually paying has risen 4.8% over the past year, not just because of changes in new home prices.”
The average growth rate of lease renewals is nowhere near the average growth rate of new rentals. So, not surprisingly, many tenants (such as homeowners) have not moved.
Americans generally Least moved since 1948according to RealPage data: Apartment rental renewal rate is 65%an increase of almost 10% from just 2019.
As more properties enter the rental market, competition intensifies and puts downward pressure on prices. At the same time, most tenants are not paying market rents for new properties six months ago because lease renewals have not kept up with the market. So there isn’t much incentive to move if you have to pay a significantly higher price to move.
Several other trends also contribute to this situation. For one thing, many of the Covid-delayed construction projects were finally coming online, adding extra supply to the market. limit of affordability This is hindering rent growth, especially by convincing more Americans to move in together.
as many 1 in 3 adults Dependent on parents for financial support, many young adults especially I decided to go back with my parentsAn increasing number of Americans are willing to rent out rooms or parts of their homes. Realtor.com research We found that 51% of homeowners are willing to rent out extra space in their homes. This is the highest percentage among millennials (67%).In fact, Americans who live with roommates An increasingly prevalent trend over the years.
All these trends combine to bring rental prices back to reality.
Is it a bad idea to rent your property now?
alike General real estate market, the rental market is very unlikely to collapse. After all, there is still a housing shortage and high housing construction rates (at least by today’s standards) are slowing new construction again.
Also, many people who were thinking of buying a house are giving up and trying to rent. If their plans change, demand will increase, putting upward pressure on the market. Again, part of this recent decline is just seasonality, and as we enter the warmer months the market should heat up again (maybe pun intended, but I often I don’t know), at least to some extent.
The skyrocketing rents over the past few years have been an anomaly, and the fact that they’re coming back down to earth may not be great for landlords, but it’s good for the country as a whole. While buying is getting harder, the rental market should stabilize.
Don’t expect next year’s rent to be much higher than it is now. However, I wouldn’t worry too much about not being able to rent your property.
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Note by BiggerPockets: These are opinions written by the authors and do not necessarily represent the opinions of BiggerPockets.
