Redfin Reports Asking Rents Rose for the Third-Straight Month in March, Driven By the Midwest

Rhea-AI Summary

The median U.S. asking rent rose 0.8% year over year to $1,987 in March, with rents in the Midwest increasing by 5%. Elevated mortgage rates and high housing costs are driving rental demand, with rents remaining below the record highs seen in 2022. Despite a surge in rent prices during the pandemic, year-over-year growth has stabilized below 3% since 2023.

Insights

Economist

The recent uptick in median U.S. asking rent, although modest at 0.8%, reflects underlying economic pressures. This increase, particularly in regions like the Midwest and Northeast, can be attributed to a combination of factors including limited housing supply due to a smaller construction boom and heightened demand as a result of elevated mortgage rates. The latter, currently at 6.82%, has notably impacted home purchasing decisions, shifting more Americans towards the rental market.

From an economic standpoint, the shift in rental dynamics is a result of affordability challenges. The record high in the Midwest suggests that even traditionally more affordable regions are not immune to the pressures of increased demand. Furthermore, the stabilization of rent growth below 3% indicates a cooling market which could be a response to increased supply or a ceiling in what renters can afford. This balance between supply and demand will be important in determining future rent trajectories.

It's important to note that while the rental market is showing signs of stabilization, the long-term implications of persistent affordability issues could lead to broader economic consequences, such as reduced consumer spending in other areas and potential increases in household debt.

Market Research Analyst

The rental market's behavior is a key indicator of broader housing market trends and consumer sentiment. The Midwest's significant rent increase suggests that affordability and availability of housing are becoming more regionalized. This could indicate an opportunity for real estate investors to focus on areas with higher demand and less competition from new construction.

Additionally, the high number of apartments under construction, while near record levels, may not immediately translate to lower rents due to the lag between construction and occupancy. The long-term impact on rents will depend on the pace of this transition from construction to available housing. Property owners may need to adjust their expectations as the market stabilizes and renters become more cost-conscious, as highlighted by the observation from the real estate agent in Phoenix.

The mention of major tech companies moving into the Midwest, such as Google in Kansas City, is indicative of a potential shift in the economic landscape, which could drive both employment and housing demand in the region. This trend warrants close monitoring as it could reshape regional market dynamics and investment opportunities.

Real Estate Analyst

The data on median asking rents rising in the U.S., with the Midwest hitting a record high, is a significant indicator of the real estate market's current state. The slower construction rates in the Midwest and Northeast have contributed to a tighter housing market, allowing landlords to command higher rents due to reduced vacancy rates. The relatively flat rents in the South and slight decrease in the West suggest a more balanced or even oversupplied market in those regions.

The report's indication that many Americans are caught 'between a rock and a hard place', unable to afford homes but also facing high rents, points to a potential increase in demand for more affordable housing solutions. This could influence developers and investors to consider alternative housing models or markets that have been previously overlooked.

Lastly, the contrast between the pandemic-induced rental frenzy and the current stabilization is a testament to the rental market's volatility and its susceptibility to external economic forces. The real estate market must adapt to these changing conditions, which could include exploring new markets, adjusting rent strategies, or even reassessing the types of properties that are in demand.

The median U.S. asking rent rose 1% from a year earlier. By comparison, rents jumped 5% in the Midwest—in part because the region hasn’t seen as big of a construction boom as other parts of the country.

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) —The median U.S. asking rent rose 0.8% year over year to $1,987 in March, marking the third consecutive increase following three months of decreases, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. Asking rents were little changed from February (+0.3%).

Rising rents in the Midwest and Northeast helped drive the national uptick in rents, and elevated mortgage rates also likely contributed. The average 30-year-fixed mortgage rate is 6.82%, below the 23-year high of almost 8% hit in October, but still more than double the all-time low of 2.65% hit during the pandemic. Many people are delaying home purchasing plans because monthly payments for homebuyers are near their record high. That’s bolstering rental demand, and as a result, rent prices.

Housing costs are so high that many Americans can't afford to buy homes, but rents are also elevated, putting a lot of people searching for housing between a rock and a hard place. The median asking rent in March was just 3.3% ($67) below the record high of $2,054 hit in August 2022.

The good news for renters is that prices aren’t growing nearly as fast as they were during the pandemic, and are more predictable. Rents soared by as much as 17.7% year over year in 2022 due to the pandemic moving frenzy, and then quickly cooled in 2023, falling by as much as 2.1% as an influx of apartment supply drove up vacancies. Year-over-year rent growth has stayed below 3% since the start of 2023. The number of apartments under construction remains near a record high, meaning there’s still a lot of supply in the pipeline, which will likely prevent rents from increasing dramatically in the near future.

“During the pandemic, you saw property owners charging $2,800 a month in rent for a house that a year earlier cost $2,000,” said Heather Mahmood-Corley, a Redfin Premier real estate agent in Phoenix. “But the economy has changed and many people are trying to curb their spending, which means it’s harder for property owners to get renters to agree to big rent hikes.”

Midwest Sees Asking Rents Rise 5% to Record High

The median asking rent in the Midwest hit a record $1,456 in March, up 5.3% from a year earlier—a larger gain than any other region. The second biggest increase was in the Northeast, where asking rents climbed 3.8% to $2,504. Rents were roughly flat in the South (+0.3% to $1,656), and fell slightly in the West (-0.7% to $2,365).

Rents are likely holding up best in the Midwest and Northeast because those regions haven’t been building as much housing as the South and West, meaning landlords aren’t under as much pressure to fill vacancies. Fewer vacancies means more competition between renters, which makes it easier for property owners to raise rents.

The Midwest is also the most affordable region to live in, which helps keep demand afloat at a time when housing affordability is so strained. It has a lower-than-average unemployment rate, and has recently attracted major tech companies, such as Google in Kansas City.

To view the full report, including charts and methodology, please visit: https://www.redfin.com/news/redfin-rental-report-march-2024

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix it up to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240410022347/en/

Redfin Journalist Services:

Kenneth Applewhaite, 206-414-8880

press@redfin.com

Source: Redfin

FAQ

What was the year-over-year increase in the median U.S. asking rent in March?

The median U.S. asking rent rose by 0.8% year over year to $1,987 in March.

Which regions saw the largest increase in asking rents?

The Midwest experienced a 5.3% increase in asking rents, the largest among all regions.

What factors contributed to the national uptick in rents?

Rising rents in the Midwest and Northeast, along with elevated mortgage rates, contributed to the national increase in rents.

Why are rents likely holding up best in the Midwest and Northeast?

These regions have not been building as much housing as the South and West, leading to fewer vacancies and more competition between renters, allowing property owners to raise rents.

What is the current average 30-year fixed mortgage rate?

The average 30-year fixed mortgage rate is 6.82%.