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U.S. rent growth has continued to slow for more than a year, but it’s made little impact when it comes to how much is coming out of renters’ pockets, a report from Redfin released on Wednesday shows.
Despite those cooling rents, the median asking rent in the U.S. remained just $24 below its all-time high as of June 2023, the real estate company reported. In June, the median rent was $2,029 compared to the record high of $2,053 in August 2022. In May 2023, the median rent was $1,995, and in June 2022 it was $2,019.
Taylor Marr | Redfin
“The housing market tends to be ‘downside sticky,’ which means rents don’t typically fall much even when renter demand pulls back,” Redfin Deputy Chief Economist Taylor Marr said in a statement. “Instead of lowering rents when business is slow, many landlords offer perks like a free month’s rent or discounted parking, which tends to be less of a hit to profits.”
“The steep slowdown in rent growth over the last year is providing some relief for renters, who now have more room to negotiate as their landlords grapple with rising vacancies,” he continued. “But with rents near their record high, most renters still aren’t finding big bargains.”
Rent growth has gradually cooled, largely because fewer people are moving due to economic uncertainty and slowing household formation and a greater rental pool. The number of completed residential projects in buildings of five units or more increased 23.9 percent year over year to 493,000 on a seasonally adjusted basis in May 2023, meaning landlords have less leverage to increase their rent prices.
The resulting slowdown in rent growth has helped reduce inflation, with consumer prices up only 3 percent through June compared to 4 percent the month before and the peak of 9 percent seen last summer, according to data released by the Bureau of Labor Statistics on Wednesday. More specifically, the cost of shelter which includes rent, increased 0.4 percent month over month in June in contrast to the 0.8 percent it rose at the end of 2022.
Because inflation data typically lags behind Redfin’s rental data, the slowdown in inflation is largely in response to the last year of rent growth slowing, Redfin noted.
Chen Zhao
“Inflation should continue easing this year and into 2024, partly because the recent slowdown in
rent growth isn’t fully baked into inflation data yet, and partly because rents have room to fall,” Redfin Economics Research Lead Chen Zhao said in a statement. “Rents have room to come down because there remains a backlog of under-construction rentals that have yet to hit the market, which means landlords will continue grappling with vacancies and won’t be able to hike rents as rapidly.”
The recent construction boom in rentals shows signs of slowing, however, with the number of permitted residential projects in buildings of five or more units down 12.2 percent year over year to 540,000 on a seasonally adjusted basis in May 2023.
Rents rose in June most quickly in the Northeast, where the median rent increased 4.3 percent year over year to a record $2,503. The Midwest was close behind with an increase in median rent of 3.7 percent to $1,396. The median rent only increased by 0.8 percent to $1,670 in the South and dropped by 0.3 percent to $2,452 in the West.
The West and South are now seeing the most rapid rent deceleration following their significant surge during the pandemic, particularly Sun Belt cities like Phoenix, Miami and Dallas, Redfin said. However, there is still plenty of room for rents to cool further in some markets.
Ali Mafi | Redfin
“The headlines say San Francisco’s housing market is plummeting, but I’m still seeing people moving in and spending $4,000 a month on rent,” Ali Mafi, a San Francisco-based Redfin Premier agent, said in a statement. “A lot of tech workers who left the Bay Area for places like Austin during the pandemic are now coming back because their employers cut their pay when they moved and/or have asked them to come back to the office.”
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