The rising number of new apartments being built across the U.S. is causing rent prices to finally cool down, according to the latest data, in what's the best news tenants have received in the past three years.
Rents, very much like home prices, skyrocketed during the pandemic years, soaring by the double digits. But as the number of new listings increases and landlords have to grapple with rising vacancies, rents are finally cooling down.
In August 2023, the median monthly rent prices reached a peak of $2,052. In January, the median U.S. asking rent rose by 'only' 1.1 percent year over year to $1,964, according to a February report by Redfin, remaining unchanged from a month before. Compared to the rollercoasters of the pandemic years, rent prices appear to be finally leveling off.
"Asking rents have flattened because the pandemic moving frenzy is over and landlords are grappling with vacancies due to a jump in apartment supply," read the Redfin report.
The number of recently built apartments is near its highest level in more than 30 years, according to Redfin, and is expected to continue rising, as the number of apartments currently under construction is nearing a record high. Redfin Chief Economist Daryl Fairweather said that the number of completed apartments will peak this year.
According to another Redfin report, new listings in the U.S. jumped by 13 percent year over year in the four weeks ending on February 25, the latest data available. It was the biggest increase in nearly three years.
If rents are only now leveling off and are still far from dropping, as tenants might wish for, it's because high mortgage rates continue to fuel demand for rented properties and because landlords are finding alternative ways of attracting tenants. According to the Redfin report, some landlords are offering one-time discounts rather than lowering rent.
The continued rise of home prices—which are back up after the brief correction of late summer 2022 and spring 2023—is also pushing more people to keep renting rather than buy a home they can hardly afford.
"Rent prices haven't dropped, but rent growth has moderated significantly to the point where rent prices are now largely flat in an economy where inflation is running at about 3-4 percent," Redfin's head of economic research, Chen Zhao, told Newsweek. "The reason why rent growth hasn't fallen more to the point where prices are declining is because demand is still strong. The affordability crisis—high rates and high prices—in the for-sale market means that there are more renters who want to buy but can't right now."
"There's not a huge incentive for renters to buy right now," Fairweather said in a press release. "Asking rents are stable, and while mortgage rates have dipped in recent months, they haven't fallen enough to make the financial equation of homebuying feasible for many people.
"If you're a renter who's interested in buying but isn't in a rush, there's not much downside to waiting for mortgage rates to fall and your savings to grow."
Zhao said she's not sure that rent prices will go negative this year, "at least not very significantly at the national level." It's possible rent prices will go slightly negative nationally or in certain regions like the South, she said, "where there is still a lot of supply to come. However, overall, strong demand will likely keep rent prices flat."
Update, 3/7/24, 8:50 a.m. ET: This article was updated to include a comment from Redfin's Chen Zhao.
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