For years, the feeling has been that rents are out of control. And that’s partly true, as median rents today are 21% higher than they were in 2019. But rents have started to decline slightly.
Asking rents fell just 0.4% year-over-year in June, but before you get too excited, the average asking rent is still $305 higher than the same time in 2019 before the pandemic, according to a Realtor.com report. June 2024 Rent ReportThe average asking rent in June was $1,743.
While there was a slight year-over-year decline in rents, prices were actually rising month-over-month, which experts say is typical during the spring home-buying or rental season. However, the main factor behind the year-over-year rent decline is actually oversupply in certain markets. The U.S. has a housing shortage of about 4.5 million units, according to ZelloThere is still an oversupply of apartments in some markets. That’s because apartments that were built during the pandemic are finally coming to fruition.
“The conditions in these markets reflect the economic rules of supply and demand,” says Brian Zrimsek, industry director at real estate technology company MRI programTells luck“Properties that were started during the pandemic are now coming online, adding to inventory and putting downward pressure on prices.” This has made it surprisingly difficult for some landlords to find tenants, with less than half (47%) of new apartments completed at the end of 2022 being rented within three months, according to Redfin.
The drop in rents is not a great thing.
But the drop in rents isn’t all good news. According to Realtor.com, rents were down just $11 in June compared to May. “New tenants will get better deals, but the drop is probably equivalent to a few trips to Starbucks,” Zrimsek says.
However, Erin Sykes, chief economist and real estate wealth advisor at International Nest SeekerHe sees the drop in rental prices as a “realignment of supply and demand for rent.”
“Most landlords have low prices and low interest rates, so the rent cuts won’t hurt them as most will still make a big profit,” Sykes says. luck“On the other hand, renters may start to have more options and therefore be more motivated to move than they were when prices were at their peak.”
But Greg Clement, CEO of real estate software company Realeflow, has a different view. Charging lower rents could hurt some landlords’ bottom lines, but he says it’s still “great news” for tenants.
“Lower rents mean they earn less money, which can lead to less maintenance and fewer upgrades to the properties,” Clement says. luck“Landlords may need to get creative to attract and retain tenants, perhaps by offering better amenities or services.”
This scenario has been particularly evident in luxury apartments, where landlords and property management companies offer expensive amenities and services such as on-site IV drips and spa treatments. It’s all part of an “arms race for resources” to attract and retain residents while rental competition remains high for landlords and property management companies in some housing markets.
What do rents do in major markets?
Rents have “definitely come down,” Clement says, “but it varies depending on where you look.”
In June, the markets with the biggest year-over-year declines were all in the South, including Austin, Texas (down 9.5%), San Antonio, Texas (-8.2%), and Nashville (-8.1%), according to Realtor.com, which says the downward trend is “unsurprising” given the increase in new rental units.
However, Midwestern markets saw the biggest rental price growth. Indianapolis saw a 4.4% increase, while asking rents in Milwaukee and Minneapolis rose 3.7%. Coastal markets showed mixed results, with Los Angeles asking rents down about 3%, but New York City rents up 0.6%.
“Some major cities have seen significant declines, while other areas, especially in the suburbs and countryside, may not feel the same impact,” Clement says. “But overall, rents are trending downward, a big shift from the steady increases we’ve seen over the past few years.”
However, it is still important to note that the United States still suffers from “a chronic shortage of supply, and buying a home is beyond the means of many people, who by necessity rent,” says Zrimsek. “This is an ongoing macroeconomic problem that the multifamily housing industry faces.”