Rapid Rent-Growth Deceleration Saps Landlords’ Pricing Power

Tenants have been at the mercy of landlords — and each other, as they compete for apartments — since the housing market exploded early in the pandemic. But the pendulum is starting to swing back to their side.

New-lease asking rents are expected to fall on an annual basis for only the second time ever, the Wall Street Journal reported, citing data compiled by CoStar Group and RealPage. The firms averaged six national rental price indices from rental sites and property data companies.

In May, new-lease asking rents only rose 2 percent year-over-year — down from double-digit gains a year ago. The deceleration is the largest over any year in recent memory.

Since the 2008 financial crisis, the only time asking rents declined across the board on an annual basis was at the very start of the pandemic. Otherwise, rents have been rising for the past 15 years.

Other rental data sources used by CoStar and RealPage included Yardi Matrix, Zillow, Apartment List and Redfin. Redfin recorded an annual rent decline in May, while the others showed rent growth slowing down year-over-year but not yet zeroing out. (Redfin also showed a decline in March and no annual change in April.)

New-lease rents are considered to be a good barometer of the rental market because they measure the price change of apartments available to be leased, rather than those being renewed.

In the past two years, rents nationally soared by 25 percent as the housing market’s high prices and rising mortgage rates kept homeownership out of reach for many. Still, if something cannot go on forever, it will stop, and renters appear to have reached the limit on what they will spend. Some relocated to cheaper locales or moved back in with their parents.

For multifamily investors, any bets made on a foundation of soaring rents are looking dicey.

— Holden Walter-Warner