Tracking rents is important for understanding the dynamics of the housing market. For example, the sharp increase in rents helped me deduce that there was a surge in household formation in 2021 (See from September 2021: Household Formation Drives Housing Demand).
The surge in household formation has been confirmed (mostly due to work-from-home), and this also led to the supposition that household formation would slow sharply in 2023 (mostly confirmed) and that asking rents might decrease in 2023 on a year-over-year basis (now negative year-over-year).
Welcome to the September 2023 Apartment List National Rent Report. The rental market continued slowing down this month, with both annual and monthly rent growth turning negative.
Annual rent growth turned negative last month, for the first time since the beginning of the pandemic. Today it stands at -1.2 percent, meaning that on average, apartments across the country are 1.2 percent cheaper today than they were one year ago. This is a major deceleration from recent years, when annual rent growth neared 18 percent nationally and soared to over 40 percent in a handful of popular cities.
Additionally, monthly rent growth turned negative this month, marking the beginning of the rental market’s slow season. Our national rent index decreased 0.1 percent in August, flipping negative one month earlier than it did last year.
Rent swings are largely driven by the balance between the number of vacant apartments available and the number of renters looking to move into them. A massive shortage of vacant units helped drive tremendous rent growth in 2021 and 2022, and today the opposite is true. …
Our vacancy index has increased for 22 consecutive months and now sits at 6.4 percent, slightly above the pre-pandemic average. Additionally, with a record number of apartments under construction, we expect vacancies to remain strong in the coming months.
Early in the pandemic, the Apartment List Vacancy Index rose to 6.8 percent as many Americans consolidated households and moved in with family amid large job losses and economic uncertainty. Then, a suddenly-tight rental market drove rapid rent growth in 2021 and 2022 as more households were competing for a dwindling supply of vacant units. Our vacancy index shrunk from 6.8 percent to 3.9 percent in just over a year.
But after bottoming out in October 2021, our national vacancy index has been easing steadily for over a year and a half. Apartment vacancies have increased for 22 consecutive months, and in August the index reached 6.4 percent, surpassing pre-pandemic levels and approaching the pandemic peak set in 2020.
This easing has begun to level out a bit in recent months, but there’s still a good chance that the vacancy rate will continue trending upward in the months ahead.
emphasis added
Realtor.com: Third Consecutive Month with Year-over-year Decline in Rent
In July 2023, the U.S. median rent continued to see a year-over-year decline for the third month in a row, down -1.0% for 0-2 bedroom properties across the top 50 metros, slightly lower than the rate of -1.1% seen in June. The median asking rent was $1,759, down by $18 from the peak seen in July 2022 but still up by $15 from last month and $348 (24.7%) higher than the same time in 2019 (pre-pandemic).
CoreLogic: “Rent growth eased for the 14th consecutive month in June”
Annual single-family home rent growth eased for the 14th consecutive month in June, registering a 3.3% gain, which remains in close range of the pre-pandemic growth rate. …
“Annual single-family rent growth has returned to its long-term, pre-pandemic rate, but increases for attached properties were one-and-a half-times that of detached properties in June; this is historically not the case, as both housing types tend to rise at the same pace,” said Molly Boesel, principal economist for CoreLogic. “However, while rent growth for attached properties lagged that of detached properties in 2020 and 2021, it has outpaced the latter in 2022 to 2023. Rent growth for attached homes is projected to continue to exceed that of detached properties as the market balances.”
The 3.3% YoY increase in June was down from 3.4% in May.
Real Page: “Apartment rent growth has cooled to an annual rate of just 0.8% in July”
Apartment rent growth has cooled to an annual rate of just 0.8% in July. But that cooling hasn’t been uniform across all product classes.
As of July, annual asking rent growth was strongest in Class A units, accounting for a 1.4% price hike in the last 12 months, according to data from RealPage Market Analytics. Still, that marks quite a slowdown from the recent high of 18.6% in February 2022. In Class B units, annual rent growth has slowed to just 0.5% in July after achieving a recent high of 16.4% in March 2022. In Class C product, which is more constrained by affordability and renter incomes, annual rent change has trickled to a 0.7% hike year-over-year in July, after a more subdued recent high of 9.9% in June 2022.
Rent Data
Here is a graph of several measures of rent since 2000: OER, rent of primary residence, Zillow Observed Rent Index (ZORI), ApartmentList.com and CoreLogic Single Family Rental Index (All set to 100 in January 2017)
OER and rent of primary residence have mostly moved together. The Zillow index started in 2015, the ApartmentList index started in 2017, and CoreLogic in 2004.
Note that new lease measures (Zillow, Apartment List) dipped early in the pandemic, whereas the BLS measures were steady. Then new leases took off, and the BLS measures have followed.
Here is a graph of the year-over-year (YoY) change for these measures since January 2015. Most of these measures are through July 2023, except CoreLogic is through June and Apartment List is through August 2023.
The CoreLogic measure is up 3.3% YoY in June, down from 3.4% in May, and down from a peak of 13.9% in April 2022.
The Zillow measure is up 3.6% YoY in July, down from 4.1% YoY in June, and down from a peak of 16.2% YoY in March 2022.
The ApartmentList measure is down 1.2% YoY as of August, down from -0.8% in June, and down from a peak of 18.1% YoY November 2021.
From Zillow:
“ZORI is a repeat-rent index that is weighted to the rental housing stock to ensure representativeness across the entire market, not just those homes currently listed for-rent.”
And from ApartmentList:
At Apartment List, we estimate the median contract rent across new leases signed in a given market and month. To capture how rents change in a market over time, we estimate the expected price change that a rental unit should experience if it were to be leased today.
Both of these measures reflect new leases, whereas most rental units don’t turnover every year (as captured by the BLS measures). The sharp increase in new lease rates in 2021 and early 2022 has been spilling over into the consumer price index (as discussed in earlier article).
The Rent of primary residence was up 8.0% YoY in June down from up 8.3% YoY in June. The Owners’ Equivalent Rent (OER) was up 7.7% YoY in July down from 7.8% YoY in June. The YoY change in OER and in PCE housing have peaked, but will stay elevated for some time, even though asking rent growth has turned negative YoY.
CPI Shelter was up 7.7% year-over-year in July, down from 7.8% in June, and down from the cycle peak of 8.2% in March 2023. Housing (PCE) was up 7.8% YoY in July, down from 8.0% in June, and down from the cycle peak of 8.4% in April 2023.
