3 reasons why rents are starting to fall in some US cities

Apartment rents are falling in some US cities after reaching record levels in the first half of 2022.

Between July and August, the national average asking price for a one-bedroom apartment fell 2.7% to $1,721, while rent for a two-bedroom fell 2.4% to $2,054. respectively on Rent.com. The average rent in the country’s 50 largest cities fell in August to about $1,771. respectively on Realtor.com.

These drops are in stark contrast to 2021, when some cities saw rent increase up to 25%. The declines also suggest that the once-red-hot rental market has hit a ceiling, economists say.

“I wouldn’t be too worried about lower rents,” Nest Seekers International Chief Economist Erin Sykes told CBS News. “I think it’s more of a plateau.”

Why the rent is cooling

Rents in some regions of the country are falling for three main reasons. First, the number of available apartments has increased.

“Every time you have a little bit more supply, the price will go down a little bit,” said John Leckie, a researcher at Rent.com.

Second, demand has also fallen as some people have left the rental market to buy homes. Third, excruciatingly high inflation continues to outpace wage growth and reduce the purchasing power of most people, effectively closing out what landlords can ask for.

“There’s a limit to what people are willing and able to pay for rent,” he said. “And if you’re going up 20-25%, you’re going to hit that limit pretty quickly.”

Rents showed their first signs of decline in July, when prices fell 0.1% across the country, respectively CoStar Group, which owns the real estate data owned by Apartments.com. In August, prices fell even more.

The biggest drops

Here are the US cities where the price of a one-bedroom apartment fell the most in August compared to last year, according to Rent.com.

  • St. Louis, MO (-39.6%)
  • Long Beach, CA (-24.4%)
  • Anaheim, CA (-22%)
  • Baltimore, Maryland (-20.3%)
  • Cleveland, Ohio (-19%)
  • Pittsburgh, PA (-16.5%)
  • Los Angeles, CA (-15.7%)
  • Albuquerque, New Mexico (-14.5%)
  • Jacksonville, Florida (-14.2%)
  • Colorado Springs, CO (-14.1%)

Charlotte, North Carolina; Des Moines, Iowa; and El Paso, Texas, saw a sharp decline in the number of two-bedroom units compared to last year, Rent.com found.

Sykes said the July-to-August drop in prices is unlikely to deepen as 2022 draws to a close.

“So if you need housing, if you need a new rental apartment, this is a good time to get in because it doesn’t get any better,” she said.

Rents fell in major cities in 2020 in the first months of 2020 the coronavirus pandemic so many people fled to smaller metro areas. But as pandemic restrictions have been lifted, large numbers of Americans have returned to big cities, boosting demand for housing, particularly in Florida and New York. Rising house prices, mortgages and booming growth inflation also caused a sharp increase in rent.

It is noteworthy that rents in many cities have not yet decreased, while in others they remain excessively high. One-bedroom rents continue to rise sharply in places like Greensboro, North Carolina (up 45.3% in August year-over-year); Aurora, Illinois (43.5%); and Tempe, Arizona (35.5%). According to Rent.com, in places like Boston and Oakland, the average price of a two-bedroom apartment is more than $5,000 a month, while a one-bedroom in New York costs an average of $5,400.

More affordable units coming on the market may provide some price reduction, but not yet mortgage rates remain elevatedmore Americans are likely to rent rather than venture into home ownership, Leckie said.

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