Renters Are About to Get the Upper Hand

That is down from the double-digit increases of a year ago and represents the largest deceleration over any year in recent history, according to data firm CoStar Group and rental software company RealPage.

An annual decline would offer relief for millions of renters who have had to contend with rents that rose 25% nationally over less than two years. With housing costs as the biggest component of the consumer-price index, a decline in rents also would help ease inflation.

A year-long drop in rent would be a potential problem for the many investors who took out large loans to buy buildings where they thought they would be able to keep raising rents. They are facing a softer market, falling property values and interest rates that have roughly doubled from early last year.

One of the rent measures, from real-estate brokerage , already shows asking rents turning negative with a decline of 0.6% in May, compared with the same month last year. The data includes both apartments and single-family rental homes, Redfin said.

A decline in asking rent over a 12-month period has only happened one other time since the 2008 financial crisis, according to some data sources, when the rental market briefly dipped in 2020 because of the outbreak of Covid-19, ending a decadelong streak of rent increases. 

The U.S. rental market is slowing down after an unprecedented run. In some markets, such as Miami and Riverside, Calif., monthly rents are up 35% or more over the past three years. But the high prices started to weaken demand from renters in the second half of 2022, many of whom were pushed to their financial limits by higher rents. Some are moving back in with parents, taking on roommates or relocating to cheaper cities. 

A historic number of new apartments under construction is also forcing more competition among landlords. That will help slow down rents in some parts of the country, such as the South and Southwest, which are seeing the most construction, housing analysts said.

“There’s certainly a correction taking place,” said Rob Warnock, a researcher at rental website Apartment List. Apartment List reported rents rising under 1 percentage point for the year ending in May.

A fall in rents would follow recent price declines in the housing market. The national median existing-home price fell 1.7% in April from a year earlier, the biggest year-over-year price decline in more than 11 years.

Relatively high renewal increases are one reason why rent, as captured by official inflation measures, is still shown to be rising at a higher-than-normal rate. The shelter component of the consumer-price index rose 0.4% in April to reach an 8.1% annual increase in April.

But new-lease rents, which measure the change in price for apartments available to be leased to new tenants, are considered more of a leading indicator. As new-lease rent prices cool, landlords also are expected to keep dropping how much they ask their existing tenants to pay, said Jay Parsons,

Property owners who don’t lower renewal rates risk watching too many of their tenants move out, driving up vacancies, which already increased 2.6 percentage points over the course of 2022.

“There’s effectively a cap on how much rents can rise on renewal in today’s market,” Parsons said.

The increases tenants pay to renew existing leases are also going down this year. The typical renter living in a professionally managed apartment building paid 6.5% more to renew their lease in May, according to RealPage. That figure has been falling for 10 months and is down from a peak rate of 11%.

The dynamic is starting to shift bargaining power to tenants in some hot rental markets, after years during which owners had leverage. David Frey and his wife, Lexi, started thinking about moving out of their Jersey City, N.J., apartment when they received notice of a 12% rent increase at the end of February. They felt that was too high, based on what they were already paying. The property manager declined to negotiate, Frey said, so the couple signed a lease for a new apartment that was bigger and cheaper.

The company posted their former unit for lease online, listing a rental price below what they were offered, said Frey. 

How do you think the rental market will fare during the remainder of this year? Join the conversation below.