USA Rent Prices
It’s been quite a ride for the rental property sectors for two years now.
The pandemic, housing supply crisis and Federal stimulus spend converged to balloon rent prices and as that era passes, rents are coming back down to earth.
It’s obvious with this slowdown that with rising costs and falling revenues, many landlords and property management companies will be reviewing their balance sheets and looking for solutions on both sides to keep their businesses viable. Right now, property management accounting software is getting a workout.
While the rocketing prices were a feature of 2021, 2023 is looking more like a landslide.
Zumper’s latest rent price report tells us what many suspect, that rent price growth is abating, and in some cities, rent prices are falling hard. Job numbers across the US are still healthy, yet oddly, rent prices are falling. It does lend credence to oversupply being the driver.
Yet, in cities such as Anaheim, Tallahassee, Durham, Colorado Springs, Charlotte, Baltimore, Miami, Winston Salem, Aurora Co, Des Moine IA, Virginia Beach, and others, prices are rising. It’s not just year over year growth either. Monthly increases reached 6% in some cities.
Greensboro, Buffalo, Boston, New Haven, Salt Lake City, Henderson, and Jersey City suffered massive downward shifts in rent prices. Of course, those with fast downtrends for whatever supply/demand cause will suffer less new investment or future construction, which doesn’t bode well for renters wish for lower more affordable rents. And it’s likely landlord and property management services will also erode along with these lower profit margins.
Redfin reported that rent prices in March declined to their lowest level in over a year, and they cite an excess of supply as the engine of dropping prices.
Redfin reports rents fell in 13 major metros:
- Austin, TX (-11%)
- Chicago, IL (-9.2%)
- New Orleans, LA (-3%)
- Birmingham, AL (-2.9%)
- Cincinnati, OH (-2.9%)
- Sacramento, CA (-2.8%)
- Las Vegas, NV (-2.4%)
- Atlanta, GA (-2.3%)
- Phoenix, AZ (-2.1%)
- Baltimore, MD (-2%)
- Minneapolis, MN (-1.6%)
- Houston, TX (-1.5%)
- San Antonio, TX (-1.3%)
Nashville, New Jersey, Atlanta, Denver, and Austin all suffered deterioration in their rental sectors.
And Redfin reports these highest rent increases in major metros:
- Raleigh, NC (16.6%)
- Cleveland, OH (15.3%)
- Charlotte, NC (13%)
- Indianapolis, IN (10.5%)
- Nashville, TN (9.6%)
- Columbus, OH (9.4%)
- Kansas City, MO (8.1%)
- Riverside, CA (7.2%)
- Denver, CO (7%)
- St. Louis, MO (4.2%)
The year over year growth in Raleigh, Cleveland, and Charlotte is astonishing, give the full downtrend happening. Each city seems to offer its own allure to apartment and house seekers.
Redfin real estate agent Jennifer Bowers, in a Redfin new release said investor purchases, high home prices, and a strong local job market are the catalyst for rising rents in these cities.
It has to be said that high mortgage rates are a key support for rent prices and that the Fed might continue rates for some time to keep the economy cool.
Given conditions vary by city, rental property managers face unique circumstances in managing their properties profitably.
Cities with Fastest Growth in Rent Prices in April, 2023
Zumper stats show Aurora, Raleigh, Chattanooga, Virginia all saw increases in the 15 to 16% range in March.
|86||Des Moines, IA||$950||1.10%||2.20%||$1,080||5.90%||10.20%|
|6||San Jose, CA||$2,570||3.20%||6.20%||$3,270||4.10%||9.40%|
|90||St. Louis, MO||$900||-2.20%||-2.20%||$1,300||3.20%||1.60%|
|34||Virginia Beach, VA||$1,500||0.70%||15.40%||$1,680||3.10%||12.00%|
|32||New Orleans, LA||$1,550||-3.10%||8.40%||$1,800||2.90%||-4.30%|
|94||Oklahoma City, OK||$860||1.20%||3.60%||$1,050||2.90%||7.10%|
|7||Los Angeles, CA||$2,400||1.30%||4.30%||$3,300||2.20%||9.60%|
|3||Jersey City, NJ||$2,990||0.30%||-9.70%||$3,330||0.90%||-14.80%|
Will Rent Prices Keep Falling?
As the charts revealed, the home buying market is being decimated, resulting in more commitment to the rental market by renters. It’s difficult to forecast home prices throughout the next 5 years, yet with home construction down, inflation high, and Americans savings accounts in strong position, with good employment outlooks, there might be good pressure for rent price rises.
The rental property market looks promising resulting in continuous demand for property management software, property management services, and rental units themselves.
Of recent, the number of renters making rent payments on time has decreased slightly, but overall renters appear to be taking their rent payment responsibilities seriously.
What Causes Rent Prices to Rise?
The key drivers of higher rent prices are:
- high real estate prices
- intense demand for rentals
- employment picture better in some cities
- low vacancy rates (few are moving, low churn)
- constrained housing supply
- migration out of big cities and out of pandemic destinations
- high employment (only in some cities)
- reduced new apartment or house construction
- local building regulations reduce new rental unit development
- NIMBY action at local level prevent development of multifamily buildings
- high construction costs for multifamily developments and apartment buildings
- investor expectations of returns
- younger renter demographics (Millennials who can’t afford to buy will rent instead, and fast rising numbers of Gen Z’s)
Additionally, the residential housing market has moved to single family home ownership rather than multifamily rental construction according to the latest report from multifamily executive.
Apartment construction was brisk back in 2017. However, since then construction rates have plummeted despite low financing rates, improving economy, and rising demand. Although the Realpage graphic below doesn’t show the last 3 quarters, we can forecast the new builds being markedly lower. As the economy passes the pandemic period, we can shortages causing upward pressure on apartment rental prices in 2021.
Housing Supply Declining
NMHC, in its recent report predicts demographic growth is expected to generate demand for another 3.7 million new
rental properties with 5 or more units through 2035. While construction was strong this year, it will likely decline in 2023 given expectations of a recession. Builder confidence is down.
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Which Cities will Have the Youngest Population of Renters?
As this chart shows, cities with the youngest renters have the most potential renters. However, average household income and apartment property prices will determine whether they’re a good bet for the next 5 to ten years for investors. Texas, Utah, and California are the most youthful states.
|3||New Brunswick, NJ||24||$38,400|
|5||College Station, TX||25||$33,400|
|6||West Jordan, UT||25||$69,400|
|17||Huntington Park, CA||27||$36,400|
|22||Santa Ana, CA||27||$53,300|
|25||West Valley City, UT||27||$52,800|
|San Francisco, CA||39||$78,400|
|Source: US Census Bureau|
Why Will Apartment Rents Fall?
The downtrend in rent prices is highly visible and is expected to continue. Recession signals are growing, yet the disaster predictions don’t look like they’ll come true. And that could mean rent prices won’t drop much further. A lot of the demand from displaced homebuyers will dissipate. Construction completions are up to add supply, yet new permits are receding.
Census.gov stats show privately-owned housing starts in March 2023 were at a seasonally adjusted annual rate of 1,420,000. This is 0.8 percent (+/- 13.0%)* below the revised February 2023 estimate of 1,432,000.
The March new construction completion rate for units in buildings with five units or more was 484,000, while the March start rate for units in buildings with five units or more was 542,000.
Investors should key in on specific neighborhoods and cities to find rental apartment properties worthy of investing in. There’s still room for capital gains in these cities. Improve your profits further with a good apartment management software solution.
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Investing in the right cities is a lot like choosing the best rental management software technology to manage it. For small portfolio managers, a simple, efficient solution makes your workload easier.
Check out ManageCasa’s all in one, simplified property management software for property management companies. Book a demo and see why so many property managers are excited about ManageCasa.
See also: Property Management Tips | Community Association Software | Property Accounting Tips | Property Management Software | Apartments for Rent | House Rental | Set Rent Price | Texas Housing Market | Will Rent Prices Drop? | Property Management Company Near Me | Which Apartment Type is Best? |Rental Housing | Property Management Accounting Software