Rent prices are still rising, just less so.
Rent Growth Flat in June
After months of soaring rent prices, Apartment List noted that monthly rent growth for a median apartment in June was +1.3% m/m, the same as in May. This was the first time in 2022 that rent prices did not increase from one month to the next.
Data from Zumper, another rental marketplace, supported the findings from Apartment List. Zumper found that median rent for a one-bedroom in June rose just +0.5% m/m. According to Zumper, this increase of +0.5% was “…a much more reasonable growth rate than the 1 to 2 percentage point increases that became the norm during the height of the pandemic.”
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Pace of Y/Y Rent Increases Trending Down
Year-to-date rent growth also increased less in June than it did last year. During the first six months of 2022, apartment prices jumped +5.4% compared with the +8.8% jump that occurred in the first half of 2021, according to Apartment List.
Even though rent prices in June increased +14% y/y, the pace of rent increases has slowed since January 2022 when rent prices were up nearly +18% y/y. Realtor.com corroborated this slowing trend in rent price growth in a May report that noted “…year-over-year rent growth has decreased every month in 2022.”
HOWEVER, slowing rent price growth DOES NOT mean that rent prices may decline. In fact, rent prices continued to break records in June. Apartment List indicated that the median rent on signed leases in 500 cities hit $1,169. Zumper found that the median rent on signed leases in 400 cities was $1,422 in June.
Housing Prices Need to Slip for Rent Prices to Slip
Apartment List suggested that fast climbing mortgage rates may be sidelining potential homebuyers and causing them to remain renters. The company’s data appears to substantial that suggestion because the national vacancy rate for rentals flatlined at 5% in June after seven consecutive months of increasing.
Apartment List further suggested that if home prices don’t fall to compensate for more expensive mortgage rates, even more potential buyers could choose to remain in rentals. This scenario would, in turn, further limit already limited rental listings and spur rent growth to increase even more.
Cooling Home Prices in Some Markets
Demand for mortgages hit a 22-year low in early June, according to the Mortgage Bankers Association and home sales in May were down for the fourth consecutive month. Historically, less demand for financing translates into fewer sales. Fewer sales lead to discounted prices and, according to Redfin, more and more sellers are cutting their listing prices.
May data from Realtor.com indicated that home prices were beginning to decline in Los Angeles and Chicago. If these selected markets with declining home prices were to grow into a national trend, and this is a BIG “IF,” then some renters would become homebuyers of more affordably priced homes.
Trend May Be Taking Shape
Zumper found that the national rent on a typical two-bedroom apartment fell -2.9% m/m in June. This was the first rent price decrease in at least one year. Zumper suggested that perhaps, just perhaps, families are leaving larger rental units for purchased homes.
Nicklin Property Management also suggested that if home prices decrease, more rentals could become available as some homeowners might choose to rent out their homes (or parts of their homes) instead of selling them.
If, and this is another BIG IF, more rental inventory becomes available, there would be more downward pressure on rents.
Thanks to TheRealDeal, Apartment List, Zumper, Realtor.com and Nicklin Property Management.
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