Rent prices across the country dropped an average of 0.5% in September. That's the fifth month in a row that rent prices have dropped and while rates are still higher than pre-pandemic prices, it's significantly down from the peak cost recorded in July 2022.
That’s excellent news for prospective renters.
However, this downward movement of the home rental market may cause concern for property owners. Landlords as well as renters need to understand the market trends and potential fluctuations in rent prices in this rapidly evolving market.
Inflation, rent prices, and interest rates are critical to the stability and affordability of housing for tenants. But these market parameters can also pose challenges for property owners. Therefore, to foster a balanced and sustainable housing environment during an economic downturn, it’s necessary to understand the dynamics of rent prices and explore the right strategies for handling them.
According to the Zumper National Rent Report, the national median rent stands at $1,511 per month for a one-bedroom home. This represents a month-over-month increase of 0.3% and a year-over-year increase of 1.6%, the smallest year-over-year increase recorded in the past two years. The national median for two-bedroom homes is at $1,864, with a 3.9 % growth over last year and 0.1% growth from last month.
Landscape of the U.S. Rental Market
Even though the COVID-19 pandemic has passed, pandemic-era trends are still evident in rental markets in the U.S., including Chicago, Boise, Nashville, and Miami. The rising trend of price slowdowns observed in 2022 continues. The figures in the Zumper report indicate that more time is required to normalize the erratic price swings experienced during the pandemic.
According to Zumper CEO Anthemos Georgiades, the market's roller-coaster ride for the last three years has created a lot of apprehension in renters, and many of them are still in a wait-and-see mindset. Georgiades expects rental prices to slow down gradually before settling into seasonal patterns.
Several cities and towns nationwide experienced an influx of remote workers during the pandemic. This migration resulted in drastic price increases in these “Zoom towns.” Once the pandemic was over, however, they could not sustain these prices because they couldn't retain enough residents. During the peak of COVID-19, Boise, Idaho registered an almost 25% year-over-year rent increase. However, the city's median one-bedroom rent is currently down to $1,330, suffering 8.3% year over year and a 6.3% month-over-month decline.
2023 U.S. Rental Trends
According to data from Rent.com, in July this year, rent prices increased by 0.31% year over year. However, this increase was lower than the 0.40% average yearly rate of growth recorded since February 2023. Rents increased by 0.41% from June to July.
The national median rent price is $2,038, which is $15 lower than the national median recorded in August 2022. Rents bottomed out in February 2023 at $1,936. The prices, since then, have gone up by almost 5%.
From a broader perspective, rent growth has slowed because of below-normal demands and the influx of new inventory. In May, prices even decreased to negative year over year. However, in the long run, rents have continued to increase. There has been a 14% increase in renting costs over the last two years. Since 2019, rent has risen by over $400, or 25%.
Where individual states are concerned, 33.33% of those markets saw a rent decrease in July. Compared to a 57% rise in June, 64% of states saw an increase in July. The West was the only region to register yearly declines, decreasing 1.2% year over year. Every year, the rents grew in the Northeast by 4.65%. They were followed closely by the Midwest, with a 4.31% rise. However, despite this sharp rise, the median rent in the Midwest was affordable at just over $1,400. The growth was relatively moderate in the South at just 0.25%.
Rental Market Crash in 2024?
Many industry analysts and renters feel the recent fluctuations in rent prices indicate a potential housing market crash in 2024.
The rising interest rate is one factor that can lead to a rental price decline. To combat inflation, the Federal Reserve is raising interest rates. Borrowing money is more expensive and may reduce the demand for rental properties. The consistent increase in the supply of rental properties nationwide is another factor that can cause rental prices to drop. Finally, the rental market may suffer because of the country's weakening economy. If the American economy declines in 2024, the demand for rental housing will likely decrease. Individuals suffering from reduced income or job loss are more likely to downsize to smaller rental units or move in with their families.
This isn’t set in stone, however. Some variables indicate a solid rental market in 2024. For example, landlords will likely encounter higher costs and pass on the same to renters in case of rising inflation. Moreover, the demand for rental properties may continue to increase in 2024 if the country's economy remains strong.
Regardless of the outcome, landlords and renters should monitor the housing market carefully over the next few months to see what new trends develop and how they evolve.
Impact on Landlords and Renters
If the apprehension about a housing market crash leads to a further decline in the rental market in 2024, renters wouldn't mind it. However, things can become difficult for the landlords across America. There’s already stiff competition among landlords for renters. If the prices go down, renters will have more choice and power to decide where they want to live and how much they want to pay.
From the landlords' perspective, rental income growth is critical to underwriting the underlying equity growth. This earning is particularly crucial to the well-being of elderly property owners approaching their retirement age.
At a time when seniors are already apprehensive about losing out on Social Security and associated benefits such as spousal benefits, a crash in the rental housing market could come as a severe blow for them. Therefore, property owners must plan to compensate for any potential loss resulting from decreasing rental prices.