The largest increase in a while, the median U.S. asking rent price rose 1.1% year-over-year to $1,964 in January, the largest annual increase since March 2023 (and unchanged from a month earlier) according to the latest rent report from Redfin.
While in general, 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.
According to Redfin, in statistical terms, rent growth has hovered between –2.1% and +2.4% for teh past year, a much narrower range than was seen in the year previous to that, when rent growth as a law as 4.8% and as high as 17.7%.
Redfin believes that asking rents have flattened because the moving frenzy caused by the pandemic is over and landlords are again having to deal with vacancies, delinquent tenants no longer covered by pandemic-era protections, and squatters. The vacancy rate in the fourth quarter was 6.6%, tied with the prior quarter for the highest level since early 2021.
Vacancies have climbed due to an influx of new units coming onto the market, which is also near its highest level in more than 30 years and the number under construction is just shy of its record high. Redfin predicts that apartment completions will peak sometime in 2024.
Rents have cooled, yes, but they have not really gone down or 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,” said Daryl Fairweather, Redfin’s Chief Economist. “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.
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 report in its entirety, click here.
