Redfin Reports U.S. Asking Rents Flatten After Pandemic Rollercoaster Ride

Rhea-AI Summary

The median U.S. asking rent rose 1.1% year over year to $1,964 in January, marking the largest annual increase since March 2023. Rent growth is stabilizing after the pandemic surge, with growth rates ranging between -2.1% and +2.4% over the past year. The rental vacancy rate is at 6.6%, the highest since early 2021, due to increased apartment supply. While rents have not significantly declined, landlords are offering concessions to attract renters amidst high mortgage rates.

Insights

Economist

The recent data indicating a modest rise in median U.S. asking rents suggests a stabilization in the rental market following the volatility experienced during the pandemic. The leveling off of rent growth can be attributed to a normalization of market conditions as the effects of the pandemic wane. The increase in apartment supply, as evidenced by a higher rental vacancy rate and a surge in completed apartment constructions, has likely contributed to the flattening of asking rents. This suggests a shift towards equilibrium where supply is starting to meet the demand that was exacerbated during the pandemic.

The current rental market dynamics have broader economic implications. High mortgage rates are disincentivizing home purchases, maintaining a steady demand for rentals despite increased supply. This dynamic is an important indicator of the housing market's health and consumer confidence. The stability in rent could imply a more predictable expense for businesses dependent on leasing commercial properties, potentially affecting their financial planning and investment strategies.

Market Research Analyst

The regional disparities in rent growth, with the Midwest experiencing the highest increase, highlight the uneven recovery and growth across different U.S. markets. This uneven growth could influence regional economic activity and consumer spending patterns. Businesses operating in regions with stable or declining rents may find opportunities for expansion due to lower overhead costs, while those in areas with increasing rents might face tighter margins.

Furthermore, the trend of renters being pushed towards homebuying in high-rent markets could signal a future shift in consumer behavior. If mortgage rates decrease, there could be a significant migration from renting to home ownership, which would impact the demand for rental properties and potentially lead to a softening of the rental market. This potential shift would be a critical factor for real estate investors and companies providing services related to home buying and renting to consider in their strategic planning.

Financial Analyst

From an investment perspective, the data on rent stabilization and the forecasted peak in apartment completions in 2024 could influence investor sentiment towards real estate investment trusts (REITs) and other investment vehicles focused on residential properties. The report's findings may affect stock valuations for companies in the housing and rental sectors. Investors will likely monitor these trends closely to assess the long-term profitability and risk associated with these investments.

Additionally, the report's insights into the relationship between rent stability and high mortgage rates offer a nuanced understanding of the current housing market. Investors might use this information to gauge the potential for future market movements, especially if mortgage rates change substantially. The balance between rental demand and supply could shift, affecting the financial performance of companies in this sector.

Rents haven’t fluctuated much over the past year, rising 1% in January–a far cry from double-digit growth during the pandemic.

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) —The median U.S. asking rent rose 1.1% year over year to $1,964 in January, the largest annual increase since March 2023, and was unchanged from a month earlier, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. While rents ticked up from a year earlier, the bigger picture is that rent growth is leveling off after surging during the pandemic and then rapidly slowing from mid-2022 to mid-2023.

Year-over-year rent growth has hovered between -2.1% and +2.4% for the past year, a much narrower range than the prior year, when rent growth was as low as 4.8% and as high as 17.7%.

Asking rents have flattened because the pandemic moving frenzy is over and landlords are grappling with vacancies due to a jump in apartment supply. The rental vacancy rate was 6.6% in the fourth quarter, tied with the prior quarter for the highest level since early 2021. Vacancies have climbed due to a building boom in recent years. The number of recently completed apartments is near its highest level in more than 30 years, and the number under construction is just shy of its record high. Redfin Chief Economist Daryl Fairweather expects apartment completions to peak in 2024.

While rents have cooled, they haven’t yet posted significant declines. That’s likely because high mortgage rates continue to fuel rental demand, and because some landlords are offering one-time concessions like a free month’s rent or reduced parking costs to attract renters without having to lower asking rents on paper.

Home prices are rising much faster than rents, which is also fueling rental demand and motivating renters to stay put instead of entering the housing market.

“There’s not a huge incentive for renters to buy right now. Asking rents are stable, and while mortgage rates have dipped in recent months, they haven’t fallen enough to make the financial equation of homebuying feasible for many people,” Fairweather said. “If you’re a renter who’s interested in buying but isn’t in a rush, there’s not much downside to waiting for mortgage rates to fall and your savings to grow.”

Buying may make sense for people who can afford a large down payment and plan to stay put for at least five years, Fairweather said. Putting 20% down helps offset the cost of elevated mortgage rates and removes the cost of private mortgage insurance, and some may prefer to buy now before competition inevitably heats up when mortgage rates fall further. Of course, many Americans can’t afford a 20% down payment, though some do qualify for down payment assistance.

Rents Climb Fastest in the Midwest and Northeast

The median asking rent in the Midwest increased 4.6% year over year to a record $1,437 in January. Rents also rose in the Northeast (2.3% to $2,427) and the West (0.6% to $2,358). In the South, rents were unchanged at $1,637. The Midwest was the only region where rents hit a record high.

“Rent prices in Chicago are still out of control,” said local Redfin Premier real estate agent Dan Close. “A lot of the buyers I’m working with are people who have been pressured out of renting–if you’re paying an arm and a leg for rent, why not try to buy and build some equity? We’ll likely see this trend intensify in the spring and summer, when the vast majority of leases end.”

Rents are likely holding up best in the Midwest and Northeast because those regions haven’t been building as much as the South and West, meaning landlords aren’t under as much pressure to fill openings.

To view the full report, including charts and methodology, please visit:
https://www.redfin.com/news/redfin-rental-report-january-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 also run the country's #1 real estate brokerage site. Our home-buying customers see homes first with same day tours, and our lending and title services help them close quickly. Customers selling a home in certain markets can have our renovations crew fix up their home to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Customers who buy and sell with Redfin pay a 1% listing fee, subject to minimums, less than half of what brokerages commonly charge. Since launching in 2006, we've saved customers more than $1.5 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

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/20240209325948/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 January?

The median U.S. asking rent rose by 1.1% year over year to $1,964 in January.

What is the current rental vacancy rate?

The rental vacancy rate is at 6.6%, the highest level since early 2021.

Which region experienced the fastest rent growth?

The Midwest saw the fastest rent growth, with a 4.6% increase year over year to a record $1,437 in January.

Why are rents stabilizing after the pandemic surge?

Rents are stabilizing due to the end of the pandemic moving frenzy, increased apartment supply leading to higher vacancies, and landlords offering concessions to attract renters amidst high mortgage rates.

What is the outlook for apartment completions according to Redfin Chief Economist Daryl Fairweather?

Redfin Chief Economist Daryl Fairweather expects apartment completions to peak in 2024.