National rent growth turned negative for the first time since early in the pandemic, according to Apartment List’s August rent report.
“This means that on average across the nation, apartments today are renting for less than they did one year ago. This marks a major deceleration from recent years, when annual rent growth neared 18 percent nationally and soared to over 40 percent in a handful of popular cities,” write Apartment List economists in the report.
While some rents in some markets inched up slightly in July, “Rent growth in 2023 has come in at a much slower pace than previous years, thanks to a combination of sluggish demand and increasing supply.”
The Apartment List National Rent Index has proven to be a strong leading indicator of the CPI (Consumer Price Index) housing and rent components, “as we capture price changes in new leases, which eventually trickle down into price changes across all leases (what the CPI measures).
“As the CPI housing component now gradually begins to reflect the cooldown that we’ve long been reporting, it will help to further curb topline inflation in the months ahead,” the report says.
While rent growth turned negative, as mentioned above, some rents inched up in July, 0.3 percent month-over-month, but are down 0.7 percent year-over-year. Rents increased modestly in July in 71 of the nation’s 100 largest cities, but prices are down year-over-year in 67 of those 100 cities thanks to sluggish rent growth throughout the past 12 months,
“July is peak moving season and a month where we typically measure some of the fastest rent growth each calendar year. In pre-pandemic years, July rent growth averaged 0.6 percent. But in 2023, July rent growth came in at just 0.3 percent and is trending down for the season. This stagnation indicates that the market cooldown that started in the second half of 2022 is continuing, even as prices rise modestly month-over-month,” Apartment List economists write.
Seattle, Portland see some of nation’s slowest growth
The Seattle, Portland, and San Francisco metro areas also are experiencing some of the nation’s slowest year-over-year growth, signaling that the market downturn is not limited to just sprawling, high-growth metros.
These denser markets were the ones that slowed first in 2020, and are slowing again today; all three rank in the top 10 for slowest rent growth over the past 12 and 36 months.
San Francisco is the only metropolitan area where rents today are comparable to where they were at the start of the pandemic.
Vacancies continue to climb
“Our vacancy index has reached 7.3 percent, surpassing the peak vacancy rate measured at the height of the COVID-19 pandemic,” the report says.
With a record number of multifamily apartment units currently under construction, this vacancy rate will remain elevated in the near future. For the first time since the early stages of the pandemic, property owners will compete for a smaller pool of tenants instead of the other way around.
Even if the end of this summer brings a resurgence in demand, that strong construction pipeline should temper rent growth for the remainder of the year, Apartment List economists write in the rent report.