Rents Slowly Returning to Pre-Pandemic Levels

Redfin reports the median U.S. asking rent fell 0.4% year-over-year to $1,937 in March—the first annual decline since March 2020 and the lowest median asking rent in 13 months. By comparison, rents were up 17.5% one year earlier, in March 2022. The median asking rent in March was unchanged from February. It remained $322 higher (19.9%) than it was at the onset of the pandemic three years earlier, though wages increased at roughly the same pace during this time.

“Rents are falling, but it feels more like they’re just returning to normal, which is healthy to some degree,” said Dan Close, a Redfin Real Estate Agent in Chicago, where the median asking rent in March was 9.2% lower than it was a year earlier. “It’s similar to the cost of eggs. You can say egg prices are plummeting, but what’s really happening is they’re finally making their way back to the $3 norm instead of $5 or $6. Rents ballooned during the pandemic, and are now returning to earth.”

Rent rates rose dramatically during the past two years because incomes increased, and household formation rose as more millennials started families. But household formation is now slowing, partly because many people are opting to stay put rather than move during a time of economic uncertainty.

Redfin notes that a surplus of supply resulting from the pandemic homebuilding boom forced rents to decline from a year earlier in March. The number of multifamily units that went under construction and the number completed each rose to the second highest level in more than three decades in February, the latest month for which data is available. Completed residential projects in buildings with five or more units jumped 72% year-over-year on a seasonally-adjusted basis to 509,000, the highest level since 1987 with the exception of February 2019. Started projects in buildings with five or more units rose 14.3% to 608,000, the highest level since 1986 with the exception of April 2022.

The study also found that the short-term rental market is in a similar situation, with the Airbnb market oversaturated in terms of supply, and authorities imposing tougher restrictions on hosts in some areas, driving some owners to lower rents or sell.

Rents declined in 13 major U.S. metro areas, including:

  • Austin (-11%)
  • Chicago (-9.2%)
  • New Orleans (-3%)
  • Birmingham, Alabama (-2.9%)
  • Cincinnati (-2.9%)
  • Sacramento, California (-2.8%)
  • Las Vegas (-2.4%)
  • Atlanta (-2.3%)
  • Phoenix (-2.1%)
  • Baltimore (-2%)
  • Minneapolis (-1.6%)
  • Houston (-1.5%)
  • San Antonio (-1.3%)

“A lot of people in Chicago became landlords during the pandemic,” Close added. “Some were looking to cash in on soaring rents. Some rented out their homes because selling would’ve meant giving up their rock-bottom mortgage rate. Others tried to sell but didn’t get a satisfactory offer due to slowing homebuyer demand. Now we have a lot of rental supply, which is bringing prices down because renters have more options.”

Rents rose in 10 major U.S. metro areas, including:

  • Raleigh, North Carolina (16.6%)
  • Cleveland (15.3%)
  • Charlotte, North Carolina (13%)
  • Indianapolis, Indiana (10.5%)
  • Nashville, Tennessee (9.6%)
  • Columbus, Ohio (9.4%)
  • Kansas City, Missouri (8.1%)
  • Riverside, California (7.2%)
  • Denver, Colorado (7%)
  • Louis, Missouri (4.2%)

Redfin Real Estate Agent Jennifer Bowers cited three factors that drove up rental rates in the Nashville area, including investors, high home prices, and a strong local job market.

“Tons of investors bought homes in Nashville and turned them into rentals during the pandemic in order to take advantage of low mortgage rates and rising rental demand—which allowed them to jack up rents. While investors have since pumped the brakes on purchases, they haven’t cut rents,” Bowers said. “Demand for rentals rose in part because skyrocketing housing prices pushed homeownership out of reach for many families. Elevated mortgage rates over the last year-and-a-half have also priced buyers out.”

Redfin reports the average 30-year-fixed mortgage rate (FRM) now at 6.27%, down from its peak in the fall of 7.08%, but up from 5% in April 2022, which has sent the typical homebuyer’s monthly payment up by nearly $300 from a year ago. While home prices have started falling on a year-over-year basis, they remain more than 30% higher than they were when the pandemic started.

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