Rent Prices Starting to Drop, But It’s Not All Good News
Rent prices have been increasing dramatically over the years, with median rent prices rising more than 21% since 2019. However, according to a recent report by Realtor.com, asking rents have started to dip slightly. But is this a cause for celebration, or is it just a small blip on the radar?
A Slight Year-Over-Year Decline
According to Realtor.com’s June 2024 Rental Report, asking rents dipped just 0.4% year-over-year in June. While this may seem like a small decrease, it’s still a notable change from the constant rent hikes we’ve seen over the past few years. The median asking rent in June was $1,743, which is still $305 higher than the same time in 2019 before the pandemic.
But There’s a Catch
While rent prices are dropping slightly, they’re still increasing month-over-month. This is typical of spring homebuying or home-renting season, when demand tends to be higher. Experts say the main factor driving year-over-year rent declines is an oversupply in certain markets. According to Zillow, the U.S. is short roughly 4.5 million housing units, but there’s still an oversupply of apartments in some areas. This is because apartments that started being constructed during the pandemic are finally coming online, increasing inventory and putting downward pressure on prices.
The Supply and Demand Equation
"Properties where construction started during the pandemic are now coming online, increasing inventory and putting downward pressure on price," says Brian Zrimsek, industry principal at MRI Software. This oversupply has made it surprisingly difficult for some property owners to find tenants, with less than half (just 47%) of new apartments completed at the end of 2022 being rented within three months, according to Redfin.
What This Means for Renters
So, what does this mean for renters? For new renters, it means they may have more options and better deals to choose from. However, the decrease in rent prices isn’t anything to call home about. Rent was only $11 less in June than it was in May, according to Realtor.com. "New renters will get better deals, but the decreases probably equate to the costs of a few Starbucks trips," says Zrimsek.
What This Means for Landlords
For landlords, the drop in rent prices can be a mixed bag. While it may mean less revenue, it can also mean a chance to attract and retain tenants with better amenities and services. As the "amenities arms race" continues, landlords are offering extravagant perks like onsite IV hydration drips and spa treatments to stay competitive.
What’s Happening in Major Markets
Rent rates have dropped in some markets, but it’s a mixed bag depending on where you look. According to Realtor.com, the markets with the most significant year-over-year declines were all in the south, including Austin, Texas (a 9.5% decrease), San Antonio, Texas (-8.2%), and Nashville (-8.1%). Meanwhile, midwest markets showed the most rental price growth, with Indianapolis seeing a 4.4% jump and Milwaukee and Minneapolis asking rents up 3.7%.
Conclusion
The drop in rent prices may be a small victory for renters, but it’s not a game-changer. The U.S. is still chronically undersupplied, and buying a home is far beyond the means of many people who are renters by necessity. This is an ongoing macroeconomic problem that the multifamily industry faces.
FAQs
Q: What is driving the drop in rent prices?
A: The main factor is an oversupply in certain markets, as apartments constructed during the pandemic are finally coming online, increasing inventory and putting downward pressure on prices.
Q: What does this mean for renters?
A: Renters may have more options and better deals to choose from, but the decrease in rent prices isn’t significant.
Q: What does this mean for landlords?
A: The drop in rent prices can be a mixed bag, with potential losses in revenue but also opportunities to attract and retain tenants with better amenities and services.
Q: What’s happening in major markets?
A: Rent rates have dropped in some markets, such as the south, while others, like the midwest, have seen significant growth.
Q: Is this a long-term solution to the housing crisis?
A: No, the U.S. is still chronically undersupplied, and buying a home is far beyond the means of many people who are renters by necessity. This is an ongoing macroeconomic problem that the multifamily industry faces.
Author: fortune.com
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