Rents are likely to continue to fall as builders continue to construct more apartment buildings, which are expected to come on line next year, and renters reach the limits of their affordability.
Renters' affordability has been squeezed by rising rents, inflation, and higher gas prices, so even a small decline will help their affordability. The typical renter household spends 25.9% of its income on rent, compared to 26.5% a year ago.
We expect the downward pressure on rental prices to continue, which will provide much-needed stability in housing expenses for many renters, and given the current momentum and seasonal trends in the rental market, it is highly unlikely that there will be a new peak in rents in 2023.
It's not all good news in the report, however. In the 50 largest metro areas, rental prices rose $15 in July to $1,759 from June. That's not unusual, as summer tends to be a peak time for prices and demand, as families move before school starts and college students try to secure housing before the start of the fall semester.
Home prices are still down $18 from their peak a year ago.
"Increased affordability is good news for renters," said Jiayi Xu, an economist at Realtor.com." We think affordability will continue to improve throughout this year."
Realtor.com surveyed rents for studios, one- and two-bedroom flats, condominiums, townhouses and single-family homes in the 50 largest cities. (Large cities include the main city and surrounding towns, suburbs and smaller urban areas).
Which units saw the biggest price declines?
Studio flats saw their first year-over-year decline in more than two years, down 0.4% to a median of $1,445. This is a turning point. Prices for smaller, more affordable units rose more as financially strapped renters flocked to more affordable units.
However, compared to July 2019 (when no one had heard of COVID-19), the price of a typical studio flat is still up 24.7%.
The price of a one-bedroom fell 0.6 per cent to $1,642. Two-bedroom rents saw the biggest price drop, at $1,948, or 1.1 percent.
Where did rent prices rise and fall the most?
The places where rents have spiked the most in the past few years are now seeing rents fall. These places tend to be high-priced cities on the West Coast, such as San Francisco, and cities in the South, such as Austin, Texas, and Miami.
But unfortunately for renters, prices are still climbing steadily in the Midwest and Northeast, where prices didn't rise as much during the pandemic. Oklahoma City has the cheapest monthly rent (among the 50 largest cities), with renters paying a median of $1,032 per month.
Austin, Texas saw the biggest drop in rent, down 7.9% year-over-year, with a median monthly rent of $1,725. This was followed closely by Riverside, CA (-7.8%), Dallas, TX (-5.6%), Orlando, FL (-5.2%), Las Vegas, NV (-4.9%), Raleigh, NC (-4.8%), Phoenix, NC (-4.6%), Atlanta and Charlotte, NC (-4.5%), and San Francisco (- 4.3 percent).
Hsu said, "The slight improvement in affordability is not surprising." Home prices are still high. Renters don't want to pay more.
The largest increase in rents was in the Milwaukee metro area, up 6.8 percent from last July, to a median of $1,618. This was followed by Richmond, Virginia (5.8 per cent), New York City (5.7 per cent), Cincinnati (5.2 per cent), Boston (4.7 per cent), Indianapolis (4.3 per cent), Oklahoma City (4 per cent), Birmingham, Alabama (3.9 per cent), Louisville, Kentucky (3.6 per cent) and St. Louis (3.5 per cent).
These areas typically attract workers from other parts of the U.S. with strong job markets and reasonable costs of living.
Sonya Mays, a Milwaukee-based Realtor and property manager at Midwest Executive Realty, says Milwaukee's home prices are higher because there aren't enough homes for rent.
Renters who can't find a home to buy are extending their rentals, which increases demand in the rental market. Landlords are also raising rents to cope with increased costs such as utility bills.
Mays said, "For some renters, moving is very difficult." Many renters are staying put due to rising rents."
