After a slight seasonal cooldown over the past few months, rent growth is back on an upward trajectory, with our national index up by 0.6 percent over the course of February. Even though month-over-month rent growth has moved back into positive territory, it remains substantially cooler than last summer, when rents grew by more than 2 percent per month for four straight months. Year-over-year rent growth currently stands at a staggering 17.6 percent, but most of that growth took place last spring and summer. Over the past four months, rents have increased by a total of just 0.7 percent. That said, this month’s growth was still faster than the pre-pandemic norm for this time of year.
On the supply side, our national vacancy index is continuing to slowly inch up, indicating a gradual easing of the tight market conditions that have characterized the rental market over the past year. We estimate that the national vacancy rate hit 4.5 percent this month, continuing a seven month streak of increases after bottoming out at 3.8 percent last August. Rents increased this month in 74 of the nation’s 100 largest cities, with Sun Belt markets such as Phoenix and Miami continuing to see some of the nation’s fastest growth.
Our national rent index closed out 2021 with a 0.2 percent month-over-month decline, making December the only month last year in which rents fell. That price dip proved to be short lived, however, with rent growth returning to positive territory over the past two months. Our national rent index increased by 0.6 percent month-over-month in February. This is a bit slower than the 0.8 percent increase that we saw last February, when the 2021 rent growth boom was just starting to pick up steam. It’s also well below the 2.1 percent average monthly rent growth that we saw from last March through September. But even if growth has cooled down substantially from last summer’s peak, it is also pacing well ahead of the pre-pandemic norm for this time of year. From 2017 to 2020, February rent growth averaged just 0.3 percent; this month’s increase was double that rate.
Rents are still increasing, but not as quickly as a year ago.
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 January 2022 (Apartment List through February 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 just starting to pick up.
The Zillow measure is up 15.9% YoY in January, down slightly from 16.0% YoY in December. And the ApartmentList measure is up 17.6% as of February, down slightly from 17.9% in January. Both the Zillow measure (a repeat rent index), and ApartmentList are showing a sharp increase 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).
Our findings suggest that if past relationships hold into 2022, housing inflation is likely to move to between 6.5 percent and seven percent and make a significant contribution to overall inflation in 2022, ranging from one to nearly three percentage points. Although our projections suggest that residential inflation will peak in late 2022, we expect it to remain elevated in 2023.
Clearly 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 4.1% YoY in January, from 3.8% YoY in December - and will likely increase further in the coming months.
