Rents Remain High Despite Fastest Cooling Pace in 19 Months

The cost of renting both single-family homes and apartments is still increasing, but at a much slower rate due to inflation putting pressure on consumers and landlords losing their ability to set prices.

In November, the rate of rent growth decreased for the tenth consecutive month, with rents increasing by only 3.4% compared to the same time last year, according to Realtor.com. This is the smallest increase in rent prices in the past 19 months.

The median asking rent in the 50 largest metropolitan markets decreased to $1,712 in November, a decrease of $22 from October and $69 from July's highest rate.

As the holidays draw near, many Americans are feeling the financial strain, leading to a more typical seasonal slowdown in the rental market that has not been seen in recent years, according to Danielle Hale, chief economist for Realtor.com. Despite this temporary reprieve, renters will still face affordability issues in 2023, with rents projected to reach new heights.

The cost of rent varies depending on the location. In the Sun Belt, rent prices only increased by 0.9% in the past year. This is a stark contrast to cities like Jacksonville, Florida and Austin, Texas, which experienced a decrease in rent for the first time in almost two years.

In the Midwest, the cost of living is increasing, with rents increasing by almost 10% in Indianapolis and 9% in Kansas City.

A report focusing solely on single-family rents in October mirrors the findings of the Realtor.com report, which examined all rents.

According to CoreLogic, the rate of appreciation for single-family rents in October 2021 was 8.8%, the lowest rate in over a year. This is a significant decrease from the pre-pandemic rate, which was three times higher. Typically, rents tend to slow down in the fall, but this year the decrease was more pronounced than usual.

The cost of renting single-family homes has been increasing at a faster rate than apartments due to the limited availability of the former compared to the latter. Furthermore, the demand for single-family homes in the suburbs was significantly higher during the early stages of the pandemic, and most of those renters have yet to relocate.

The Sun Belt is still experiencing a high demand for housing. Miami and Orlando have the highest single-family rents, with an increase of 16% and 15.5%, respectively, from the previous year.

Homebuilders are still contributing to the rental market, but the slower rate of rent increases may be having an effect on multi-family construction. The U.S. Census reported that permits for multifamily buildings dropped by an unexpected 18% from October to November.

Peter Boockvar, chief investment officer at Bleakley Financial Group, has reported that he has been hearing stories of multifamily projects being called off due to the high cost of construction, the increase in funding rates, and the slowing of rent growth.

The current level of construction is indicative of a further slowdown in the coming year. Data from the National Association of Home Builders reveals that November saw the highest number of multifamily units under construction since December 1973, with 932,000 units. Robert Dietz, the chief economist for the organization, has commented on the situation.

According to the November home construction report, Dietz predicted that apartment construction will decrease in 2023 due to the high amount of supply in the building process and the tightening of commercial real estate finance conditions.