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Apartment rent prices have declined across all major metropolitan areas as new units enter the market. Boston saw an especially dramatic 6% decrease in its rents.
As more New Yorkers return to the city, skyrocketing rents are forcing many out of their apartments or into cheaper alternatives. This has also caused bidding wars in the rental market, according to Miller Samuel's recent report.
Apartment rent prices continued their downward trend in January as new units entered the market, continuing a pattern of monthly decreases that began at the end of summer. Compared with new leases signed in August, median apartment rental contracts cost consumers an additional 3.5 percent reduction last month, according to data compiled by listing platform Apartment List.
Analysts anticipate the decline to continue, even with a significant influx of new inventory entering the market recently. With less demand from prospective renters and apartment occupancy falling below pre-pandemic highs, further reductions in rent may take place.
Some markets have experienced a faster cooling than others, yet many remain 20 or 30% higher than when the COVID-19 pandemic began in March 2020. Apartment List reports prices in cities like Tucson, Arizona; Tampa, Florida; and Miami as being 35% higher than they were prior to the pandemic's start - suggesting some tenants are having difficulty keeping up with rising rates.
One of the primary reasons some tenants have struggled to keep up with rising rents is that landlords have demanded increases of 20% or more. As a result, many have decided to relocate out of town or seek smaller apartments where they can afford rent payments.
Another sign of a slowing rental market is that vacancy has decreased slightly over the past year. Currently, it stands at 5.9 percent, down approximately 400 basis points from last fall's peak and just below pre-pandemic levels.
One and a half ago, vacancy rates were still above 5% in most major metropolitan areas and rents were rising rapidly. It appears that the COVID-19 pandemic has finally begun to impact supply side of apartment rental market.
Over the past 18 months, most renters have had to make tough choices about where to live and some have had no choice but to downsize. This has caused a shift in demand towards suburban areas with more reasonable housing costs and ample available inventory.
It is evident that the rental market is being driven by a growing desire among tenants to be closer to work and family, driven away from densely populated urban areas which were the first places to experience an abrupt spike in rental prices during COVID-19.
The most notable shift has taken place in the west, where many people are moving to suburban areas such as San Francisco or Berkeley. Due to low housing costs in these places, many can now afford to rent a home for less money than they would pay living in larger cities like San Francisco or Boston.
Apartment owners in many major metropolitan areas are facing the prospect of having to reduce their rents, so they're offering various concessions in order to attract tenants. These may include lowering the security deposit, decreasing rent by a certain percentage based on income or even providing one month free rent.
Rents for new leases have declined across every major metropolitan area in America, and it appears that some of these declines may continue through the rest of this year even if the economy avoids a recession.
One of the most noticeable trends in these overheated markets is that landlords are having difficulty convincing new tenants to sign a lease agreement. This could be because many apartment units have vacancy rates much higher than their market average.
If landlords can't move their inventory off the market, they may have to reduce their asking prices and offer incentives in order to attract tenants. These could include free rent or discounts on parking.
Another major factor affecting apartment rents nationwide is the surge of new apartments entering the market. This supply has already started to slow down landlords' increases in rents, particularly in high-rent areas like downtowns where condominiums and luxury apartment buildings are being constructed.
These developments are leading to lower apartment rents and greater competition among landlords, creating an ideal climate for renters looking for great deals on their next place to live, according to housing economists. This year should be a good one for those searching for housing deals, experts predict.
But this could change if demand for apartment units increases or the US economy experiences a recession. At that point, it's possible that landlords nationwide could reduce their average rent asking prices for new leases for the first time since before the global financial crisis.
This could occur as some of these overheated markets experience an influx of new apartment supply. This will make it simpler for renters to find suitable accommodations, possibly leading to fewer empty units on the market and, consequently, lower apartment rents.
For instance, Houston - the fifth most populous metro area in America - offers lower average monthly rent for apartments than other US markets. This is despite having more than 7 million inhabitants and an average home price that is double what one can find nationally, making it the most expensive market in America.
Meanwhile, rents in the San Francisco metro have declined by over 12 percent over the last few years - an unprecedented discount among all 100 large cities. This has brought that city's median rent back below its March 2020 level.
This trend has spread to other major cities such as Chicago and Washington, D.C., the San Francisco Bay Area and Boston; as the chart below indicates, these two metros experienced the largest drops in rent over the past six months.
This trend is alarming as it could threaten the long-term viability of America's rental market, as renters may become priced out of their current neighborhoods. For many, this is a frightening prospect - but one landlords must overcome if they want to remain profitable.