The rental market continued slowing down in August as both monthly and annual rent growth turned negative, according to the September report from Apartment List.
Rent growth typically follows a seasonal pattern with rents up in spring and summer and down in fall and winter, but 2023 seems to be showing an early decline in rents already down heading into the fall and winter period.
“Annual rent growth turned negative last month, for the first time since the beginning of the pandemic. Today it stands at -1.2 percent, meaning that on average, apartments across the country are 1.2 percent cheaper today than they were one year ago,” Apartment List research team writes in the report.
“This is 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.
“Additionally, monthly rent growth turned negative this month, marking the beginning of the rental market’s slow season. Our national rent index decreased 0.1 percent in August, flipping negative one month earlier than it did last year.”
Overall Apartment List says rents fell month-over-month in August in 53 of the nation’s 100 largest cities. With sluggish rent growth throughout the past 12 months, prices are down year-over-year in 72 of these 100 cities.
Rental slowdown finally reflected in inflation numbers
The primary measure of inflation in the United States is the Bureau of Labor Statistic’s Consumer Price Index (CPI), which is heavily influenced by changes in housing prices.
“Our index shows that the rental market has been cooling rapidly for a year, but the CPI housing component has just recently hit its peak. Despite the CPI’s measure of housing inflation remaining elevated, topline inflation has already meaningfully cooled. 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.”
Vacancies continue growing
“Our vacancy index has increased for 22 consecutive months and now sits at 6.4 percent, slightly above the pre-pandemic average. Additionally, with a record number of apartments under construction, we expect vacancies to remain strong in the coming months.
“New apartment construction is recovering from pandemic-related disruptions, and there are now more multifamily units under construction than at any point since 1970. As this new inventory continues to hit the market over the remainder of this year and into next, we are now entering a phase in which property owners are beginning to compete for renters to fill their units, a marked change from the prevailing conditions of the past two years, in which renters had been competing for a limited supply of available inventory.”
Summary
August’s 0.1 percent rent decline marks an early start to the rental market’s slow season, and brings year-over-year rent growth to a low that has not been seen since early in the pandemic.
“As apartment demand wanes throughout the remainder of the year, and apartment supply improves through a strong construction pipeline, expect rent growth to cool further for the remainder of the year,” the report says.
Read the full rental market report here.
