Apartment Rents Cooling Off and Expected to Decline
Apartment rents have been decreasing significantly for several months and are projected to go negative compared to the previous year.
In August, rents were only 0.28% higher than in August 2022, as reported by real estate tech platform RealPage. This is a stark contrast to the 11% annual growth seen a year ago. Apart from a brief drop during the Covid lockdowns, rents have not experienced negative annual growth in over a decade, except during recessions when demand declined.
However, the current situation is different. Apartment occupancies across the country are at a healthy 94%, which aligns with historical norms. High mortgage rates, soaring home prices, and limited supply have led more potential buyers to remain in the rental market. The main issue now is the surplus of available apartments.
The number of newly constructed units has reached a 50-year high, with over 460,000 units completed this year alone. In the past three years, more than a million new units have been built, a record-breaking number. Moreover, a significant portion of this supply caters to the higher-end market. With more options available, renters have greater bargaining power, causing landlords to have less control over pricing as turnover rates increase.
Although national rents have not yet turned negative, several local markets have experienced declines. Austin, Texas (-4.9%), Phoenix (-4.9%), Las Vegas (4.7%), Atlanta (-3.7%), and Jacksonville, Florida (-3.4%) have seen the largest drops.
On the other hand, the Midwest and Northeast regions continue to witness significant rent increases, except for New York, where rents have only grown by 1.9% annually due to the influx of new supply hitting the market.
Looking ahead, the high supply of apartments is expected to persist through next year, potentially driving rents even lower until 2025. However, new construction has declined sharply this year due to financing challenges and other factors. This reduction in supply should continue into 2026, allowing rents an opportunity to recover some ground.
