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The demand for new leases on apartments turned negative in the fourth quarter, the latest sign of a deteriorating rental market amid concerns about the economy, according to a new report from rental data firm RealPage.
It comes at a time when builders are wrapping up a banner year for the construction of new multifamily housing, virtually all of which is in the rental market.
The report documented the ongoing slowdown in the rental market, with falling rents for the fourth straight month. While it documented continued warning signs for the sector it also came with some silver linings.
“We’ve never before seen a period like this – weak demand for all types of housing despite robust job growth and sizable wage gains,” said RealPage Chief Economist Jay Parsons. “It wasn’t just apartment demand that shot up in 2021 and plunged in 2022. The same pattern played out to varying degrees in other rentals and in for-sale homes.”
Although this is the time of year that rent typically slows, the report said the slowdown is happening faster than normal, particularly in tech-heavy markets like Austin, San Jose and Raleigh/Durham.
Rent has fallen 1.6 percent nationwide since September, the report said, while ending up 6.1 percent for the year.
“We also saw continued rapid cooling in previously red-hot markets, like Las Vegas, Phoenix and Sacramento — which appear to be slowing down from their 2020 and 2021 inbound migration booms,” said Carl Whitaker, RealPage director of research and analysis.
That rent is expected to continue falling in 2023, as new apartments are completed. The slowdown in new leases paired with higher inventory is expected to hike the vacancy rate, putting downward pressure on rents.
Despite the rapid slowdown in new lease activity, there are few signs of economic turmoil among renters, the report said.
Turnover rates remained historically low in 2022. Nearly 96 percent of market-rate renters paid rent on time in November, a slight uptick over the same month in 2021, RealPage said.
There’s no sign of renters doubling up on a widespread basis, a common way to save money amid economic slowdowns. There’s also no sign that renters are fleeing higher priced apartments for less expensive ones, as the slowdown occurred relatively equally across most markets and price points.
Renters are simply staying put as an ongoing wait-and-see moment continues in the U.S., according to the report.
“Low consumer confidence means many American households feel nervous and uncertain, and that has a freezing effect on household formation and housing demand,” Parsons said. “Human nature is that when we feel uncertain, we’re much more likely to stay put – and that’s what happened in 2022.”
RealPage works with some of the nation’s biggest property management firms and has access to real-time occupancy and pricing trends.
The company said all signs point to pent up demand heading into the new year if consumer confidence rebounds.
“The bottom line is that the balance of power in the rental market is rapidly shifting to renters,” Parsons said.
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