Rents are starting to fall in the United States

  • Some tenants are already signing cheaper leases across the country, and they could drop further in 2023.
  • As demand slows and the number of available apartments increases, prices fall.
  • Lower rents could help dampen inflation and make a severe recession less likely.

This story originally appeared on Business Intern.


An apartment building in New York

If your rent has gone up this year, as it has for many Americans, 2023 might give you reason to cheer.

Tom Lawler, a former Fannie Mae economist, wrote in a recent immovable report that he expects rents across the country to not only slow, but see a rare “real dip” in real dollars next year. And these declines are expected to spread and accelerate in 2023.

In fact, rents in the United States have already started to fall in some markets. Data shows that in the third quarter of 2022, national asking rents fell 0.4%, reflecting a change from just a year ago, when demand drove prices at historic highs.

Lawler’s forecast hinges on U.S. builders continuing to ramp up construction despite fewer tenants who want — and can afford — new rental units. It’s a rare story of oversupply in a housing market that has been weighed down by shortages for years.

Financial and economic fear among Americans is also driving the decline, says Anthemos Georgiades, CEO of Zumper, an online rental database.

“We have seen historic levels of migration throughout the pandemic as people have shifted to working from home and reinventing their living arrangements,” he said in a statement. “Now, with a turbulent and unpredictable economy raising fears of a recession, migration is slowing, occupancy rates are falling and rental prices are following suit.”

These predictions are already materializing in the rental market. According to RentCafe, although the construction of multi-family dwellings has reached a 50 years high, the demand for apartments evaporates. Data from the RealPage real estate database shows that in the third quarter of the year – a generally robust rental period – rental demand has “moderately negativeas rental traffic plummeted. The October decline marked the first time in the company’s tracking history that demand turned negative during the third quarter.

Lower rent prices could not only be a lifeline for Americans’ bank accounts, but for the entire US economy as the Federal Reserve continues raise interest rates in order to cool prices. Lower rents could go a long way to convincing the Fed that inflation is under control and helping the United States avoid a major downturn that could include mass layoffs and plummeting home values.

“Right now it’s a race against the Fed,” former Federal Reserve economist Claudia Sahm told Insider. “The faster these things show up in consumer price inflation, the faster inflation comes down, the sooner the Fed will pull back.”

Economic downturn is already translating into cheaper rents for Americans

On a personal note, U.S. renters will rejoice at lower rents after record 17.6% increase in 2021 and additional hikes earlier this year.

In a harbinger of what could happen in the United States next year, many major cities are already experiencing declines. According to Zumper, more than half of the 100 U.S. cities measured in its monthly National Rent Report saw month-over-month price declines in October. Down 0.8% and 0.7% from September, the national median rent for a one-bedroom and two-bedroom unit now stands at $1,491 and $1,832, respectively.

Cities that have seen rapid rent growth in recent years, including San Jose, Tulsa and Seattle, all saw their rents drop from the previous month. Even New York, which has seen booming rents in recent months, has seen the median price of one- and two-bedroom apartments fall by more than 2%.

And domestically, the faster price growth slows, the more likely the Fed is to reduce the pace of its rate hikes that are weighing on the economy. Since housing represents about a third from the consumer price index, the monthly inflation report from the Bureau of Labor Statistics, lower rents could go a long way in convincing that the Fed’s inflation is under control.

While most economists expect a recession in 2023, the severity of the slowdown could depend on how quickly prices ease.

Lawler’s analysis, along with recent rental market data, both suggest things are moving in the right direction.

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