Realtor.com® May Rental Report: Slower Decline in Rents Indicates Inflation May Persist
The Realtor.com May Rental Report reveals a -0.7% decline in median asking rent to $1,732. This marks the tenth consecutive month of rental decreases, though the rate of decline has slowed, complicating the inflation outlook. The fall in rents spans all unit sizes, with studio rents at $1,449, one-bedrooms at $1,612, and two-bedrooms at $1,925. Regional differences are noted, with the South and West experiencing declines, while rents rose in the Midwest and Northeast, driven by labor market demands and supply constraints. The report suggests ongoing rent declines could continue to influence shelter inflation and the Consumer Price Index (CPI).
- Median asking rent fell -0.7% year-over-year to $1,732, indicating a cooling rental market.
- Rents declined across all unit sizes: studios (-1.9%), one-bedrooms (-1.1%), and two-bedrooms (-0.7%).
- The South saw significant rent decreases, with Austin (-9.3%), Nashville (-8.3%), and San Antonio (-8.2%) leading the way.
- Rents in the West also fell, with Phoenix (-4.5%), San Francisco (-4.3%), and Las Vegas (-4.1%) showing notable declines.
- Some markets in the Midwest and Northeast saw rent increases, suggesting strong local economies.
- The pace of rental declines has slowed, complicating the Federal Reserve's efforts to control inflation.
- The median asking rent is only $24 (-1.4%) below its August 2022 peak, indicating progress in reducing rent costs.
- The CPI shelter index remains 'stickier' with a 5.5% year-over-year increase, suggesting that overall inflation may persist.
- Rent increases in some Midwest and Northeast markets indicate supply constraints that could further drive up costs.
Insights
From a Financial Analyst's perspective, the slowdown in the decline of median rents has several important implications. First, the slower rate of rent decreases suggests that the overall inflation, particularly in the shelter component, may not ease as swiftly as anticipated. This deceleration complicates the Federal Reserve's efforts to control inflation, likely leading to a more cautious approach in monetary policy decisions. Investors should consider the potential for prolonged higher interest rates, which can impact sectors like real estate, consumer spending and borrowing costs.
Additionally, the regional variances in rent changes highlight differences in local economic conditions and housing supply. Markets like Austin and Nashville, with significant declines in rents, might signal oversupply or weakening demand, whereas areas like Indianapolis and Milwaukee, which saw increases, could indicate robust local economies but constrained housing supply. Investors should be mindful of these regional dynamics when making investment decisions in real estate or related sectors.
From the Market Research Analyst's viewpoint, the report underscores the critical role of housing supply in rent dynamics. The persistence of high rents in certain regions despite an overall national decline points to insufficient housing construction in those areas. This imbalance between supply and demand can drive up rental prices, even in the face of broader economic trends aiming to lower costs. For investors, this highlights opportunities in markets where demand outstrips supply. Developers and real estate investors might find lucrative prospects in initiating or expanding housing projects in regions with rising rents.
The report also reveals important consumer behavior insights, particularly the resilience of the rental market even amid economic fluctuations. Investors should monitor trends in rental demand and supply closely, as shifts can signal broader economic changes or opportunities for investment in residential real estate and construction sectors.
An Economic Analyst would note the implications of the 'sticky' shelter index mentioned in the report. The Consumer Price Index (CPI) for shelter remains elevated due to a lag in reflecting real-time market rent adjustments. This 'stickiness' means that the CPI could continue to show higher inflation rates for longer, affecting economic policy and investor sentiment. Understanding this lag is important for retail investors, as it clarifies why inflation might seem persistent despite falling market rents. The 'stickiness' can influence interest rate expectations and market volatility.
Furthermore, the regional disparities in rent trends also point to uneven economic recovery and growth across the United States. For instance, while the Midwest and Northeast show rent increases, the South and West experience declines. This divergence reflects local economic conditions and can impact local investment strategies differently. Investors should take these nuanced regional trends into account when evaluating potential investment opportunities.
Median asking rent fell -
The median asking rent nationally for 0-2 bedroom units fell by -
"Slowing rent growth preceded slower shelter inflation, and falling market rents – as we've seen in the last 10 months of Realtor.com® data – have furthered that deceleration in shelter prices," said Danielle Hale, Chief Economist at Realtor.com®. "As a significant driver of overall inflation, shelter costs need to slow further and are expected to do so. However, waning market rent declines foreshadow smaller Consumer Price Index shelter declines ahead and put a question mark on whether we've seen enough to rein in overall inflation, complicating the Fed's policymaking."
CPI shelter index is "stickier"
Shelter costs have been a big driver of overall consumer cost increases. The Consumer Price Index for shelter, which includes rent of primary residence and the owners' equivalent rent of residences, was up
Rents drop in South and West, increase in Midwest and Northeast
The biggest year-over-year declines in median asking rent were seen in the South, led by
Rents decline across all size categories
Median rents for units of all sizes continued to fall in May. The median asking rent for studios nationwide fell by -
Unit Size | Median Rent | Rent YoY | Rent Change – 5 years |
Overall | -0.7 % | 21.5 % | |
Studio | -1.9 % | 17.3 % | |
1-bed | -1.1 % | 20.3 % | |
2-bed | -0.7 % | 23.3 % |
Rental Data – 50 Largest Metropolitan Areas – May 2024
Metro | Median Rent (0-2 Bedrooms) | YOY (0-2 Bedrooms) |
-5.8 % | ||
-9.3 % | ||
-5.5 % | ||
1.6 % | ||
-1.5 % | ||
NA | NA | |
-5.0 % | ||
0.7 % | ||
1.9 % | ||
2.7 % | ||
-2.3 % | ||
-3.7 % | ||
-0.7 % | ||
0.5 % | ||
NA | NA | |
-3.2 % | ||
4.4 % | ||
-4.1 % | ||
-2.5 % | ||
-4.1 % | ||
-2.5 % | ||
-2.5 % | ||
-3.8 % | ||
-4.4 % | ||
4.3 % | ||
2.9 % | ||
-8.3 % | ||
NA | NA | |
2.2 % | ||
0.0 % | ||
-6.4 % | ||
-0.4 % | ||
-4.5 % | ||
2.4 % | ||
2.7 % | ||
NA | NA | |
-3.4 % | ||
-3.3 % | ||
-1.7 % | ||
NA | NA | |
4.8 % | ||
-8.2 % | ||
-1.8 % | ||
-4.3 % | ||
3.7 % | ||
1.0 % | ||
-1.8 % | ||
-2.8 % | ||
3.2 % | ||
1.5 % |
Methodology
Rental data as of May 2024 for studio, 1-bedroom, or 2-bedroom units advertised as for-rent on Realtor.com®. Rental units include apartments as well as private rentals (condos, townhomes, single-family homes). We use rental sources that reliably report data each month within the top 50 largest metropolitan areas. Realtor.com® began publishing regular monthly rental trends reports in October 2020 with data history stretching back to March 2019.
About Realtor.com®
Realtor.com® is an open real estate marketplace built for everyone. Realtor.com® pioneered the world of digital real estate more than 25 years ago. Today, through its website and mobile apps, Realtor.com® is a trusted guide for consumers, empowering more people to find their way home by breaking down barriers, helping them make the right connections, and creating confidence through expert insights and guidance. For professionals, Realtor.com® is a trusted partner for business growth, offering consumer connections and branding solutions that help them succeed in today's on-demand world. Realtor.com® is operated by News Corp [Nasdaq: NWS, NWSA] [ASX: NWS, NWSLV] subsidiary Move, Inc. For more information, visit Realtor.com®.
Media Contact: Sara Wiskerchen, press@realtor.com
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SOURCE Realtor.com
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