Rent prices nationally were up slightly in May at 0.5 percent but sluggish demand and increasing supply of new units is slowing rent growth, Apartment List says in the June report.
“This is the fourth straight monthly increase in rent prices, but rent growth is flattening out at a time of year when it’s normally picking up steam,” Apartment List economists write in the report.
While rent prices may be trending up again, rent growth is still slower for this time of year.
“Year-over-year rent growth is continuing to decelerate, and now stands at just 0.9 percent, its lowest level since March 2021. Year-over-year growth is now solidly below the average rate from 2018 to 2019 (2.8 percent), and could possibly even dip into slightly negative territory in the months ahead,” the repot says.
Some cities showing negative year-over-year rent growth
Rents increased in May in 76 of the nation’s 100 largest cities, but at the same time, 48 of the top 100 cities are currently logging negative year-over-year growth up from 40 cities last month.
Scottsdale, AZ saw the nation’s sharpest month-over-month rent declining in May (-0.9%), continuing a broader slowdown in the Phoenix metro.
“We are in peak season for the rental market, when rent growth usually ramps up. However, this month’s data shows rent growth stalling, not accelerating. Prices have been rising for four straight months, but rent growth in April and May (+0.5 percent) came in slightly slower than what we saw in March (+0.6 percent).
“The stagnant rent growth that we’ve seen over the past couple of months indicates that the market cooldown that started in the second half of 2022 is continuing, even if prices are now trending up.
“This month’s 0.5 percent increase was the second slowest May rent growth of any year in the history of our rent estimates (going back to 2017), ahead of only 2020, when prices fell in May amid the turmoil of the early pandemic. From 2017 to 2019, rents increased by an average of 1.1 percent in May, more than double this month’s increase.
On the supply side
“Our vacancy index currently stands at 7 percent, surpassing the average pre-pandemic rate and continuing to trend upward.
With a record number of multifamily apartment units currently under construction, some property owners may start struggling to fill vacancies for the first time since the early stages of the pandemic.
There are now more apartment units under construction than at any time since 1970.
“As this new inventory continues to hit the market over the course of the year, 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 have been competing for a limited supply of available inventory.”
The economists conclude that, “Year-over-year growth could even dip into negative territory within the next couple of months.
“And even if demand rebounds over the summer, a strong construction pipeline should temper rent growth for the remainder of the year.”