Rental Inflation: The Market Is Shifting As Growth Slows

By Dani Romero

From Yahoo Finance

The for-rent housing market is starting to come down, with rent growth dropping in recent months.

“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%,” Jay Lybik, National Director of Multifamily Analytics, CoStar Group, stated in a press release.

CoStar Group Inc., through its platform, found rents declined 0.4% between August and September as the U.S. median rental price declined from $1,641 in August to $1,634 last month.

“We’ve just hit a very significant point in the current multi-family cycle,” Lybik told Yahoo Finance in a phone interview. “We have now seen rents decline quarter over quarter by $7, comparing the second quarter of 2022 to the third quarter of 2022. That’s a significant change in what we were seeing just even six months ago.”

On an annual basis, asking rents remained at 5.8% through September, the latest deceleration in rent growth after the market hit its peak earlier this year.

The same report also found that the national vacancy rose 5.4% at the end of September as the pace of newly delivered units nearly doubled to 120,000 units, signaling a shift in market conditions from just a year ago when demand significantly outpaced supply.

“This is the fourth quarter in a row in which new supply additions just significantly outpaced the demand. We’re still seeing a lack of cluster demand and the new supply is not getting absorbed. It’s putting upward pressure on the vacancy rate,” Lybik said.

As a result, landlords are “really desperate” to get tenants to occupy their units, Lybik explained, which is leading to rents nationally declining on a nominal basis as more tenants stay in their current apartments.

“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 to sit pat in whatever their current situation is,” Lybik said.

Rents are an important measure of inflation given their outsize share in most household budgets. Housing comprises about 30% of the headline consumer price index, and about 40% of the core index.

The consumer price index posted an annual rate of 8.3% in August, the highest figure in nearly 40 years, the Labor Department said, as shelter costs rose 0.7%.

“Market rents are cooling,” Chief Economist Danielle Hale told Yahoo Finance in a phone interview. “The growth rate is cooling.”

At the same time, given the surge in rents last year, many tenants are still paying relatively high amounts each month in their current leases.

“Sadly, there’s not a lot of relief on the horizon,” Hale added. “On a month to month basis, rents are coming down. They tend to do that in the fall. So there is a little bit of a seasonal relief this year.”