Welcome to the April 2023 Apartment List National Rent Report. Our national rent index increased by 0.5 percent over the course of March, the second straight monthly increase and a slight acceleration over last month’s pace. This month’s increase is of a similar magnitude to the typical March price change that we saw in pre-pandemic years. After 2022 closed out with record-setting price declines, it appears that rental demand is rebounding in line with the usual seasonal trend.
Year-over-year rent growth is continuing to decelerate, and now stands at 2.6 percent, its lowest level since April 2021. Year-over-year growth is now pacing slightly below the average rate from 2018 to 2019 (2.8 percent), and is likely to decline even further in the months ahead.
Even as rent growth has turned positive again, we continue to see easing on the supply side of the market. Our vacancy index currently stands at 6.6 percent, which now puts it back in-line with the average pre-pandemic rate. With a record number of multi-family apartment units currently under construction, we expect that supply constraints will continue to soften. 2023 could be the first time since the early stages of the pandemic that we see property owners competing for renters, rather than the other way around.
emphasis added
Housing economist Tom Lawler adds: YOY Increase Down, But Monthly Index Up for Second Straight Month
Apartment List reported that its Apartment List Rent Index (ALRI) for March was up 0.52% from February, a slight acceleration from February’s 0.3% gain. Compared to a year earlier the March ALRI was up 2.66%, compared to a YOY gain of 2.99% in February.
The ALRI attempts to measure apartment rent trends based on repeat transactions, and the ALRI is not seasonally adjusted and is not “smoothed” using moving averages as is the case in the Zillow Observed Rent Index (ZORI, all residential rental properties) and the Core Logic Single Family Rent Index (CLSFRI, SF detached and attached rental properties). Its methodology is described here.
As with other rent indexes, the ALRI displays modest but statistically significant variations, with rents hitting a seasonal peak in the summer and a seasonal trough in the winter. Based on the limited history of this time series (data only go back to January 2017), I have attempted to construct a seasonally adjusted ALRI. Monthly % changes in the unadjusted and seasonally adjusted ALRIs from January 2022 to March 2023 are shown below.
As the table shows, from August to December of last year the ALRI fell on a seasonally adjusted basis, but it has increased on a seasonally adjusted basis in the first three months of this year. I was expecting rents to continue to decline this year, but so far that has not been the case.
Below is a table showing my estimates of the seasonally adjusted monthly % changes in the ALRI, the ZORI, and the CLSFRI.
In February 2023, the U.S. rental market experienced single-digit growth for the seventh month in a row after thirteenth months of slowing from January’s peak 16.4% growth. Median rent across the top 50 metros was up just 3.1% year-over-year for 0-2 bedroom properties. The median asking rent was $1,716, down by $1 from last month and $48 from the peak but is still $296 (20.8%) higher than the same time in 2020 (pre-pandemic).
U.S. annual single-family rent growth continued to slow year over year in January, declining for the ninth straight month to 5.7%. Orlando, Florida posted the country’s largest annual gain for the third consecutive month, while Miami dropped out of the top three highest-growth markets for the first time since the summer of 2021. None of the 20 metro areas that CoreLogic tracks posted double-digit year-over-year rent gains, the first time that trend has been observed since late 2020. …
“January’s single-family rent growth cooled to the lowest level since the spring of 2021,” said Molly Boesel, principal economist at CoreLogic. “While rent growth is slowing at all tracked price tiers, declines for the lowest-cost rentals are not as significant, which raises affordability concerns. Annual rent growth for lower-tier properties was about three times the pre-pandemic rate, while gains in the highest tier were nearly one-and-a-half times during the same period.”
The 5.7% YoY increase in January was down from 6.4% in December.
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 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 2014, the ApartmentList index started in 2017, and CoreLogic in 2004.
Here is a graph of the year-over-year (YoY) change for these measures since January 2015. Most of these measures are through February 2023, except CoreLogic is through January and Apartment List is through March 2023.
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 now increasing.
The CoreLogic measure is up 5.7% YoY in January, down from 6.4% in December, and down from a peak of 13.9% in April 2022.
The Zillow measure is up 6.3% YoY in February, down from 6.9% YoY in January, and down from a peak of 17.0% YoY in February 2022.
The ApartmentList measure is up 2.6% YoY as of March, down from 3.0% in February, and down from a peak of 18.0% YoY November 2021.
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). The sharp increase in new lease rates in 2021 and early 2022 is spilling over into the consumer price index now (as discussed in earlier article).
The Owners’ Equivalent Rent (OER) was up 8.0% YoY in February, from 7.8% YoY in January - and might increase further in the coming months even as rents slow.
Conclusion
My suspicion is year-over-year rent increases will slow further over the coming months with slow household formation, and as more supply comes on the market. It is possible that we will see a year-over-year decline in rents sometime this year. As ApartmentList analysts noted: “2023 could be the first time since the early stages of the pandemic that we see property owners competing for renters”.
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