The for-rent housing market is starting to come down, with rent growth dropping in recent months.
The market is shifting with national asking rents falling by 0.4% over the last 90 days, according to Jay Lybik, National Director of Multifamily Analytics, CoStar Group, after four quarters of supply additions outpacing demand.
CoStar Group Inc., through its Apartments.com platform, found that rents fell by 0.4% between August and September as the U.S. median rental price fell from $1,641 in August to $1,634 last month.
Lybik said in a phone interview with Yahoo Finance that we've just hit a very significant point in the current multi-family cycle. We have seen rents decline quarter over quarter by $7, compared to the second quarter of 2022 to the third quarter of 2022. It was a significant change in what we were seeing just a few months ago. The market hit its peak earlier this year, and asking rents remained at 5.8% through September, the latest deceleration in rent growth.
The report also found that the national vacancy rose by 5.4% at the end of September as the pace of newly delivered units nearly doubled to 120,000 units, signalling a shift in market conditions from just a year ago when demand outpaced supply.
This is the fourth quarter in a row in which new supply additions have outpaced demand. We're still seeing a lack of cluster demand and new supply is not getting absorbed. It is putting upward pressure on the vacancy rate, according to Lybik.
Lybik said that landlords are desperate to get tenants to stay in their apartments, which is leading to rents falling nationally on a nominal basis.
The uncertainty in the economy has put a lot of potential households holding off making a decision about renting an apartment, and they're just sitting there in whatever their current situation is, according to Lybik.
Rents are an important measure of inflation given their large share in most household budgets. The housing sector comprises about 30% of the headline consumer price index and about 40% of the core index.
The consumer price index posted an annual rate of 8.3% in August, the highest number in nearly 40 years, the Labor Department said. Shelter costs increased by 0.7%.
The market rents are cooling, according to Realtor.com Chief Economist Danielle Hale, told Yahoo Finance in a phone interview. The growth rate is cooling. Many tenants are still paying high amounts each month in their current leases because of the surge in rents last year.
Hale said there was not a lot of relief on the horizon. Rents are coming down on a month to month basis. They tend to do that in the fall. There is a bit of a seasonal relief this year.