Landlords Pause Rent Increases as Demand Falls

Now might be the best time for renters in years as landlords finally pause on rent increases.

Rates are declining after reaching a record high in August 2022, according to a Realtor.com report from January. Last month, the median asking rent for studios, one- and two-bedroom units in the 50 largest metros fell $5 from last year to $1,712. That's $46 less than 2022 levels.

The number of surveyed landlords planning to raise rents in the next year also came down, despite prices being 18.3 percent higher than they were four years ago. Altogether, a majority, or 60 percent of landlords, indicated they would be hiking rates in the next 12 months, but this marked a 5 percent drop from the first quarter of 2023.

"Rental conditions are improving but are improved by baby steps. It is definitely good news for renters, but affordability challenges still exist," Realtor.com economist Jiayi Xu told Newsweek.

The pause in rate increases might come down to the sheer number of new housing units entering the market.

According to iPropertyManagement, there were 1.4 million non-seasonally adjusted new house starts, with 66.8 percent of new houses single-family homes, which often are rented out by landlords.

Interest rates are also dipping, which brings in more past renters into the housing market as homebuyers. Still, rent rates are tied to the seasons, and winter months tend to see lower rates offered, as fewer people move during these months and landlords dislike a unit sitting on the market too long.

"The pause is unlikely to be a coordinated effort, but rather a reaction to market demand. We may see a corrective stabilization as a result," Jsun Laliberte, broker at New York City-based Douglas Elliman Real Estate, told Newsweek.

While realtors say the pause in rate increases should offer some renters breathing room, it might not have the lasting effects many long for.

"If a home is priced too high, landlords are seeing it sit on the market longer than they want, which ends up costing them money," Cody Horvat, broker at The Scott Group, told Newsweek. "We're seeing some slight price reductions as a way to entice renters, but this is likely only going to happen for another month or so before the majority of rents start to increase again."

How the Pandemic Affected Rent Prices

Rent rates initially climbed during the pandemic as a response to the government's economic stimulus payments, which added money into the market that renters might not have had before.

"The stimulus checks and enhanced unemployment benefits temporarily increased many Americans' purchasing power," Howard Hao Li, Florida licensed attorney, told Newsweek. "This boost enabled some individuals to afford higher rents or to move into more desirable locations, driving up demand in certain segments of the rental market."

At the same time, the Federal Reserve maintained historically low interest rates, making borrowing cheaper and higher property values.

During the pandemic, many American workers also suddenly found their jobs remote, which sparked interest in renting in suburban areas and in units that offered more space and updates. However, as the tide turns to return-to-office policies, urban areas are attracting more residents, and rent has climbed up.

With their stimulus payments in hand, Americans started renting out new homes without being aware of what the rent might look like down the line.

"The injection of government stimulus into the economy was a double-edged sword," Hao Li said. "While it provided necessary relief to millions of Americans and helped prevent a deeper economic downturn, it also had unintended consequences on the housing market, including accelerating rent increases."

But today, the rental market is undergoing a period of recalibration, as landlords note demand is going down to normal and many Americans cannot afford any uptick in prices, experts say.

Again, that doesn't mean you should expect rents to stay consistently low throughout the rest of the year.

"In a typical year, rent prices tend to be higher in the spring/summer than in the fall/winter as people are more likely to move in warmer seasons," Xu said.

Overall, Realtor.com predicts the median asking rent will lower by 0.2 percent this year.