Welcome to the September 2022 Apartment List National Rent Report. Our national index rose by 0.5 percent over the course of August, half the rate of growth compared to last month. This marks a deceleration of the rental market that follows a typical, pre-pandemic trend. This year rents have risen slightly faster than they did before the pandemic, but significantly slower than they did in 2021 when rent inflation was at its peak. So far in 2022 rents are up 7.2 percent, compared to 14.8 percent at this point in 2021. Year-over-year growth has slowed to 10 percent, down from a pea[k] of nearly 18 percent at the beginning of the year.
On the supply side, a deceleration in rent growth was matched with a slight uptick in apartment vacancies. Our vacancy index stands at 5.1 percent today and has gradually eased from a low of 4.1 percent last fall. That said, today’s vacancy rate remains below the pre-pandemic norm, which may be attributable to spiking mortgage rates that continue sidelining first-time homebuyers and keeping more households renting for longer.
emphasis added
Rents are still increasing, but slower than last year.
CoreLogic … today released its latest Single-Family Rent Index (SFRI), which analyzes single-family rent price changes nationally and across major metropolitan areas.
Single-family rent prices remain elevated, up 13.4% from one year earlier, but have continued to relax compared with growth seen earlier this year. This deceleration could be partially due to worries over an impending economic slowdown, even though the job market added 528,000 positions in July, returning the employment rate to its level prior to the COVID-19 outbreak. Still, as the cost of owning a home continues to grow significantly, many Americans are shut out of the housing market, forcing them to keep renting.
“While the annual growth in single-family rents is nearly double that of a year ago and is still near a record level, price growth began decelerating in June,” said Molly Boesel, principal economist at CoreLogic. “Nationwide, both year-over-year and month-over-month growth were slower in June than they were earlier this year, and roughly half of the largest U.S. metro areas experienced a slowdown in annual growth in June.”
The 13.4% YoY increase in June was the down slightly from May.
Rent Data
I’m going to update some of the data on rents. Here is a graph of several measures of rent since 2000: OER, rent of shelter, rent of primary residence, Zillow Observed Rent Index (ZORI), and ApartmentList.com. (All set to 100 in January 2017)
OER, rent of shelter, and rent of primary residence have mostly moved together. The Zillow index started in 2014, and the ApartmentList index started in 2017.
Here is a graph of the year-over-year (YoY) change for these measures since January 2015. All of these measures are through July 2022 (Apartment List through August 2022).
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 are picking up.
The Zillow measure is up 13.2% YoY in July, down from 14.9% YoY in June. This is down from a peak of 17.2% YoY in February.
The ApartmentList measure is up 10.0% YoY as of August, down from 12.3% in July. This is down from the peak of 18.0% YoY last November.
Both the Zillow measure (a repeat rent index), and ApartmentList are showing a slowdown in rental increases in rents. 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). This sharp increase in new lease rates should spill over into the consumer price index over the next year (as discussed in earlier article).
Rents are still increasing, and we should expect this to continue to spill over into measures of inflation in 2022. The Owners’ Equivalent Rent (OER) was up 5.8% YoY in July, from 5.5% YoY in June - and will likely increase further in the coming months.
Conclusions
My suspicion is rent increases will slow further over the coming months as the pace of household formation slows, and more supply comes on the market. For example, the National Multifamily Housing Council (NMHC) recently reported that markets tightness only increased slightly in their July survey.
Market Tightness Index came in at 51, just above the breakeven level of 50. This indicates that market conditions have become tighter, albeit with considerable variation by market. Twenty-three percent of respondents reported markets to be tighter than three months ago compared to 21% of respondents who observed looser conditions in the markets they watch. Meanwhile, over half of respondents (56%) thought that apartment market conditions were unchanged from last quarter.
The following graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tighter conditions from the previous quarter. Even though the index declined in July, this indicates market conditions tightened slightly in July for the sixth consecutive quarter. This suggests rent growth will slow.
Historically the NMHC survey has been a leading indicator for rents, and I expect rent increases to continue to slow.
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