Rental Rate Increases Are Slowing Down—And the Trend Is Expected to Continue

The rental housing market is seeing a slowdown, as rent growth has dropped over the past several months. According to Jay Lybik, National Director of Multifamily Analytics, CoStar Group, “After four quarters of supply additions outpacing demand, the market is shifting with national asking rents declining over the last 90 days by 0.4%.”

During the first half of 2022, rent prices soared, hitting a national average of $2,495. Comparing the second quarter and third quarter of 2022, rent rates have now declined by $7—a significant difference from what was seen six months ago. Annually, rent rates remained at 5.8% through September.

Although rent prices continue to raise year-over-year, the pace of growth is slowing, particularly in cities that saw the largest increases in 2021, like Palm Beach, Phoenix, Tampa, and Las Vegas.

Vacancy Rates Are Rising

In addition to the rent rate slowdown, CoStar also found that the national vacancy rate rose 5.4% at the end of September, due in part to the large number of new units hitting the market. Unlike the market conditions a year ago, the supply of available rentals has significantly outpaced the demand.

As a result, many landlords have become desperate to find tenants to occupy their rentals. This has contributed to rents across the nation declining as more tenants choose to stay in their current housing, rather than search for a new place to live. “The uncertainty in the economy right now has put so many potential households holding off making that decision about going out and renting an apartment, and they’re just continuing to stay put in whatever their current situation is,” Lybik said.

Rental Rates and Inflation

Due to the large portion rent makes up of most household budgets, rental rates are an important measure of inflation. Housing makes up approximately 30% of the headline consumer price index and around 40% of the core index. According to the Labor Department, the consumer price index rose to the highest amount in almost 40 years—an annual rate of 8.3%. In addition, shelter costs rose 0.7%.

Higher borrowing costs and increases in labor and construction prices have also cut into landlords’ profits—as well as higher costs for utilities. However, with the increase in rent prices last year, many tenants are still paying higher monthly rent rates to stay in their current leases. Although rent prices have stabilized in some markets, some areas, like New York City, continue to have record highs. CoStar anticipates that rent growth will continue to slow through the end of the year and into 2023.

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