Growth in rent prices has finally slowed to pre-pandemic levels, and rent prices have started to fall in major cities like Pheonix, Las Vegas, and San Francisco, but it remains to be seen if they will fall nationally.
Rent prices in the United States have finally dropped to pre-pandemic levels. The news is a relief to millions who have been struggling to keep up with the skyrocketing housing costs over the past few years. Although the monthly payments for apartments have increased slightly, they were only up 2.6 percent from March last year, CNBC reports.
According to Apartment List, that figure is the smallest annual increase since April 2021. Following the record-setting rent prices of 2022, growth is now just below the pre-pandemic average of 2.8 percent. One of the primary reasons for the drop is the increase in the supply of rental properties. A recent surge in construction has led to a greater supply of housing options for renters.
RealPage Market Analytics says approximately 917,000 apartments were being developed nationwide in 2022. The new units will increase America’s existing apartment base by 4.9 percent. This construction, the highest since the early 1970s, has pressured landlords to keep their rent prices competitive to attract tenants.
“Even if demand continues to strengthen, a robust supply of new inventory hitting the market this year should keep rent prices in check,” experts from Apartment List said. As such, analysts expect 2023 to be a year of “modest positive rent growth.” The pandemic also contributed to the decline in rent prices, as economic uncertainty caused people to downsize or move to more affordable housing.
Interestingly, cities experiencing increased rent prices are primarily located in the Midwest. Chicago, Indianapolis, Cincinnati, and Louisville all experienced a cost hike of 6 percent, while Boston rose by the exact figure. By contrast, major metropolitan areas are seeing a decline. In Phoenix and Las Vegas, prices dropped by 3 percent year over year, with San Francisco decreasing by 1 percent.
Rent prices for single-family homes are also experiencing a drop in rent prices. Although rent prices have declined in most tiers, there hasn’t been a significant drop in the low-cost housing market. Annual rent growth for more affordable homes is three times higher than before the pandemic. According to Principal Economist at CoreLogic, Molly Boesel, this raises concerns about affordability.
Meanwhile, a previous report from CNBC said rent prices in the United States are expected to grow by 5 to 7 percent in 2023. This is higher than the annual gains of 4 to 5 percent before the global pandemic. However, Moody’s Analytics predicts growth will taper off in the year’s second half of home financing costs decline.
This is mainly due to an expectation that the Federal Reserve will move away from continued interest hikes after inflation starts to come down. This would take some pressure off the mortgage market. Despite the good news, rent prices have hit people hard in the last few years. The American Housing Survey estimates that about half of rental households spent $1,000 or more monthly on rent in 2021.
Residents in some metro areas faced sizable rent price increases during the pandemic. Eight of the largest 15 metropolitan regions saw increases of 10 percent or more in median monthly rent between 2019 and 2021. Hopefully, the costs will continue to decrease.