Here’s some positive news for renters, though it may not be as encouraging for landlords: rental prices in the United States have continued to decline, marking the 15th consecutive month of year-over-year decreases. In October 2024, the median asking rent fell by $14, or 0.8%, bringing the average rent down to $1,720.
Modest Relief Amidst High Rents
While this reduction may seem modest to renters, it offers significant relief to individuals and families navigating the current rental market. Conversely, landlords are witnessing the erosion of regular rent increases that traditionally offset rising inflation costs. Despite this downward trend, rents remain substantially higher than pre-pandemic levels; specifically, the median asking rent is $272 more than it was in October 2019. This illustrates the profound changes that have occurred within the rental landscape over the past few years.
Factors Influencing Rent Increases
The increase in rents over recent years can be attributed to various factors, including inflationary pressures affecting real estate. Over the last five years, the inflation rate in real estate has surged by 18.8%, slightly lower than the overall consumer price inflation rate of 22.7% during the same period. This has provided some landlords with a buffer against rising costs of living and stagnating incomes, reinforcing the notion that renting can serve as a hedge against inflation—though there are times when this does not hold true.
Surge in Housing Supply
The recent decline in rents is largely driven by a significant increase in housing supply, particularly in multifamily units. Between January and September 2024, approximately 606,000 new multifamily housing completions contributed to a more balanced rental market. This surge in construction is especially pronounced in the South, where multifamily housing completions rose by an impressive 49.1% compared to the same period in 2023 and a staggering 76.6% compared to pre-pandemic levels in 2019. These trends in multifamily housing have a ripple effect throughout the residential real estate market; single-family home renters may consider multifamily options, potentially creating vacancies in other sectors if those rentals do not adjust downward as well.
Impact on Major Cities
The influx of new housing stock is beginning to alleviate some competitive pressure on rental prices in major cities such as Miami, Austin, TX, and Memphis, TN. In these areas, rents have decreased by 1.3%, 4.2%, and 5.4%, respectively. This trend indicates that while rent prices are still elevated compared to pre-pandemic rates, increased supply is making these markets more accessible for renters.
Landlords’ Perspective
From a landlord’s viewpoint, the ongoing decline in rent prices presents several challenges. Many landlords are grappling with increased operational costs due to rising mortgage rates and property maintenance expenses. As they strive to maintain profitability while keeping rents affordable for tenants, some landlords are opting to freeze rents or even reduce them to retain high-quality tenants. According to recent data, only 24% of landlords are considering raising rents, while a significant majority plan to keep them steady or decrease them. Their primary concern is vacancy rates; turnover that once represented an opportunity for increased rent now poses a risk as empty rentals may take longer to fill.
Negative Consequences for Landlords
This downward trend has negative consequences for landlords. Prolonged periods without rent increases or extended vacancies can lead to financial strain on landlords, who may struggle to cover their rising costs. If landlords keep rents artificially low for too long, they risk being forced out of the rental market altogether due to unsustainable business practices. Such an exodus could exacerbate existing housing shortages and ultimately drive up prices as supply diminishes. Additionally, increasing regulatory pressures and potential rent control measures could further complicate landlords’ ability to manage their properties effectively. Approximately 40% of landlords are reportedly planning to sell one or more of their rental properties within the next year due to these challenges. Such actions could lead to reduced availability of rental units and heightened competition among remaining tenants.
Future Projections
Looking ahead, projections suggest that rental housing stock will grow by 1.1%, exceeding 49 million units by fall 2025. The South is expected to see the largest increase at 1.5%, followed by other regions such as the West (1.2%), Midwest (0.9%), and Northeast (0.7%).
Conclusion
In summary, while renters are experiencing a welcome decline in prices after a prolonged period of increases, they still contend with rents that are significantly elevated compared to pre-pandemic figures. The ongoing expansion of housing supply appears poised to further ease rental pressures in the coming months and years. However, landlords face their own set of challenges that could impact their participation in the rental market and ultimately affect housing availability for tenants. While high rents have historically generated substantial income for landlords, stagnant increases coupled with rising costs are gradually eroding profit margins until enough landlords exit the market and reduce supply sufficiently to restore balance. Landlords with multiple units may have an advantage over smaller landlords due to economies of scale and risk diversification; so, it is often smaller landlords who exit the rental market first, contributing to increased inventory available for sale and softening that market as well. This phenomenon creates a cross-market inventory surge beneficial for renters and buyers but poses challenges for homeowners seeking to sell or for landlords maintaining their properties. A balanced approach that considers both tenant affordability and landlord sustainability is essential for fostering a healthy rental market moving forward.
