Advertisement
Rental markets are undergoing a cooling phase, with asking rents beginning to show a decline from record-high prices, according to insights from Whitney Airgood-Obrycki, a senior research associate focused on affordable housing at the Joint Center for Housing Studies of Harvard University. This development does not necessarily signify a sharp fall in rental prices but rather a slower growth pace in various regions.
Factors Contributing to Cooling Rental Markets
1. Supply Boost: The easing of rent costs is associated with an increase in supply, leading to a rise in vacancy rates. The boosted supply is primarily in the form of higher-end apartment units, contributing to the overall filtering-down effect on rental prices.
2. Slowed Demand: Demand, which reached record highs in 2022, is now experiencing a slowdown, contributing to the cooling trend in rental markets.
National Median Asking Rent Trends
As of December, the median asking rent price in the U.S. dropped to $1,964, reflecting a 0.8% decrease compared to the previous year. This marks the third consecutive monthly decline, following a 2.1% drop in November and a 0.3% decrease in October, as reported by real estate site Redfin. The data encompasses various types of properties, including single-family homes, multifamily units, condos/co-ops, and townhouses.
Indirect Impact on Rent Affordability
The cooling of rental markets is occurring indirectly, driven by the nature of new builds that predominantly consist of higher-end apartment units. Susan M. Wachter, a professor of real estate and finance at The Wharton School of the University of Pennsylvania, describes this as a “filtering-down effect.” The supply increase in higher-rent Class A units often prompts existing tenants to upgrade, stabilizing prices in these units and creating increased vacancy in Class B and C units.
Future Outlook for Rent Affordability
While the current cooling trend is a positive development, experts anticipate that it will take time for the boosted supply and slowed demand to significantly impact rent affordability across income levels. Most construction activity is concentrated in professionally managed apartment buildings, primarily Class A units, and the gradual filtering-down effect is expected to influence rents over time.
In summary, the cooling rental markets offer a reprieve for renters as asking rents show signs of decline, albeit at a slower growth pace. The interplay between supply and demand dynamics, especially in higher-end units, is expected to influence rental affordability trends in the coming months.