Rent-burdened Americans are finally catching a break
Rent prices in America’s 50 largest metros fell in September for a fifth consecutive month—offering some relief to cash-strapped apartment hunters.
The decline isn't substantial on its own, but considering the housing supply situation, it’s significant that prices are caving in at all.
On a regional level, Austin, TX, saw the biggest year-over-year rent decline at 7.3%. Another Texas metro, Dallas-Fort Worth, was a close second with a 6.2% drop.
Median rents were down more than 5% in Orlando, FL, Phoenix, AZ, and Portland, OR.
Realtor.com’s data paints a slightly different picture of the rental market than apartment aggregator rent.com, which maintains that the average national rent is above $2,000 per month.
The gap largely stems from different methodologies used to track apartment costs. But while the numbers differ, they both tell the same story: rent prices have peaked (for now).
Housing supply gets a boost
Realtor.com attributed the soft decline in rent prices to an increase in housing supply, especially for multi-family units.
As of September, the annual completion rate for buildings with 5+ apartments stood at 445,000 units—up 15% year-over-year.
Data from the Commerce Department confirmed the trend, with September housing starts soaring 7% to an annual rate of 1.358 million units.
The good news is more housing supply is about to flood the market as buildings that were financed when mortgage rates were near record lows are nearing completion, according to Zillow.
The bad news is that interest rates have skyrocketed over the past year, making it more expensive for builders to finance large projects. That could put a cap on supply and shore up housing prices.
How much of a shortage are we talking about?
According to the National Low Income Housing Coalition, America needs 7.3 million affordable rental homes to meet demand—and that’s just for low-income renters.
Rent is still more affordable than buying
While the average American pays more than 30% of their income on rent—and therefore meets the government’s definition of ”rent-burdened”—it’s still more affordable than buying a home at today’s prices and interest rates.
As Creditnews reported on Oct. 24, the average monthly payment on a new mortgage is 52% higher than the average rent. That’s the largest difference ever recorded.
“As rents ease and both home prices and mortgage rates continue to climb, it’s become more economical to rent than to buy in nearly all major markets,” said Danielle Hale, Realtor.com’s chief economist.
The only major U.S. cities where buying is more affordable than rent are Detroit, Philadelphia, Cleveland, and Houston, according to Redfin.