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Redfin Reports U.S. Asking Rents Ticked Up for Second Straight Month in May, Hitting Highest Level Since 2022

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The median U.S. asking rent rose by 0.8% year over year in May, reaching $1,653, the highest level since October 2022, according to Redfin (NASDAQ: RDFN). This marks the second consecutive monthly increase following 11 months of decreases. Washington, D.C., Cincinnati, and Chicago experienced double-digit rent growth. However, the Sun Belt areas like Jacksonville, FL, and San Diego saw declines. The report highlights that the surge in multifamily construction during the pandemic has now slowed, balancing the supply-demand dynamics. Despite the increase, rents are still $47 below the record high of August 2022. The rental vacancy rate remains stable at 6.6%, indicating a relatively balanced market.

Positive
  • The median asking rent rose by 0.8% year over year in May, reaching $1,653.
  • This is the highest level since October 2022, indicating strong demand.
  • Double-digit rent growth was observed in Washington, D.C. (11.1%), Cincinnati (10.9%), and Chicago (10.8%).
  • The rental vacancy rate has stabilized at 6.6%, suggesting a balanced market.
Negative
  • Rents in the Sun Belt areas like Jacksonville, FL, saw a significant decline of 10.1%.
  • San Diego experienced an 8.7% drop in asking rents.
  • Rents in August 2022 were $47 higher than the current median, posing affordability challenges.
  • The surge in multifamily construction has created a backlog of new units, limiting rent price growth.

Insights

The 0.8% year-over-year increase in the median U.S. asking rent to $1,653 marks a significant shift following months of decline. Investors should note that this growth is linked to a decrease in multifamily building starts, which traditionally impacts rental prices. However, the 6.6% vacancy rate—the highest since 2021—indicates that while demand remains high, supply is still relatively strong. This balanced supply and demand dynamic has kept rent increases modest compared to the pandemic surge.

It's essential to recognize the regional disparities highlighted in the report. For instance, Washington, D.C. saw an 11.1% increase in median asking rents, driven by limited new construction and high demand. In contrast, rent declines in Sun Belt areas like Jacksonville and Phoenix underscore the impact of high vacancy rates and more substantial apartment construction in these regions. These regional trends can affect stock valuations for real estate companies with heavy exposure to either segment.

For retail investors, this suggests that the real estate market remains highly localized, with varied impacts on rental income depending on geographical focus. Considerations on multifamily REITs (Real Estate Investment Trusts) should factor in these localized trends.

The marginal uptick in rents signifies a stabilization in the rental market after a volatile few years. The 0.5% month-over-month increase suggests a slow but steady recovery, highlighting the resilience of the rental market amidst economic uncertainties. This is critical for investors focusing on long-term growth in real estate, as steady rent increases could translate into reliable income streams, especially in regions like the Midwest where affordability remains a key driver of demand.

However, rising rents also pose affordability challenges for renters, which could indirectly affect consumer spending in other sectors. High rental costs can limit disposable income, potentially impacting industries reliant on consumer spending. Investors should be mindful of these broader economic implications when assessing the attractiveness of real estate investments.

Additionally, the trend of rising rents in the Midwest compared to stagnation or declines in the Sun Belt underscores the importance of regional economic health and housing policies. Investors should consider the macroeconomic environment and regional housing strategies that might influence future rental income.

The median asking rent climbed 0.8% year over year to $1,653 just $47 below the record high. Washington, D.C., Cincinnati and Chicago all saw double-digit increases.

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) —The median U.S. asking rent rose 0.8% year over year in May to $1,653 — the highest level since October 2022, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That’s the second consecutive increase (rents climbed 0.9% year over year in April) following 11 months of decreases. Rents rose 0.5% on a month-over-month basis.

Apartment prices are closely tied to apartment supply. Multifamily construction surged during the pandemic moving frenzy, which pushed rent prices down because building owners were competing for tenants. While multifamily building starts have fallen below their 10-year historical average, there’s still a backlog of new units that are hitting the market every month, which is putting a lid on how much prices can grow.

“Demand from young renters remains high, as many of them are opting to stay put rather than contend with an increasingly unaffordable homebuying market,” said Redfin Senior Economist Sheharyar Bokhari. “But so far, rent price growth has been limited because there are enough new apartments to meet demand, even in the busiest time of year for the rental market.”

For the past three quarters, the rental vacancy rate has hovered at 6.6%. That’s the highest level since 2021, though it’s worth noting that the vacancy rate is no longer growing like it was during the pandemic.

While asking rents ticked up in May, they’re stable compared to recent years; they rose as much as 17.5% year over year during the pandemic, and then fell as much as 4.1% this past summer. Still, the median asking rent in May was just $47 below (-2.8%) August 2022’s record high of $1,700, posing affordability challenges for some renters.

Rents Are Posting Double-Digit Gains in Washington, D.C., But Falling in the Sun Belt

In Washington, D.C., the median asking rent rose 11.1% year over year in May — the biggest jump among the 33 major U.S. metropolitan areas Redfin analyzed. Four other metros saw double-digit gains: Cincinnati (10.9%), Chicago (10.8%), Virginia Beach, VA (10.3%) and Minneapolis (10.3%).

The biggest asking rent declines were in Jacksonville, FL (-10.1%), San Diego (-8.7%), Austin, TX (-7.2%), Seattle (-5.9%) and Phoenix (-5.5%).

Rents are falling in the Sun Belt in part because the region has been building more apartments than other parts of the country (like the Midwest and Northeast) to meet demand brought on by the influx of people who moved in during the pandemic. But the pandemic housing boom is now in the rearview mirror, and property owners are facing vacancies, which is causing rents to cool.

Meanwhile, rents are rising in many Midwest metros because the region hasn’t been building as many apartments. The Midwest is also the most affordable region to live in, which helps bolster demand at a time when housing affordability is strained across most of the U.S.

To view the full report, including charts, metro-level data and methodology, please visit:
https://www.redfin.com/news/asking-rents-highest-since-2022

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.

Redfin Journalist Services:

Kenneth Applewhaite

press@redfin.com

Source: Redfin

FAQ

What was the median U.S. asking rent in May 2023?

The median U.S. asking rent in May 2023 was $1,653.

How much did the median asking rent increase year over year in May 2023?

The median asking rent increased by 0.8% year over year in May 2023.

Which metropolitan areas saw double-digit rent increases in May 2023?

Washington, D.C., Cincinnati, and Chicago experienced double-digit rent increases in May 2023.

What was the biggest decline in asking rents for May 2023?

Jacksonville, FL saw the biggest decline in asking rents at 10.1%.

How does the current median rent compare to the record high of August 2022?

The current median rent in May 2023 is $47 below the record high of August 2022.

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