Redfin’s November Rent Report: A Sign of Relief for Renters, But What About Landlords and Investors?
The latest rent report from Redfin has just been released, and it’s bringing some good news for renters across the nation. According to the report, median rent prices have declined by 2.1% year over year, marking the biggest decline since 2020. This is a welcome relief for renters who have been struggling with high rental prices for the past few years.
However, for landlords and investors, this news may not be as positive. While there are regional variations that are worth exploring, the overall trend of declining rent prices may be a cause for concern for those in the real estate industry. If you’re planning on investing in real estate in 2024, it’s important to take a closer look at these regional variations and understand the current state of the rental market.
Asking Rent Prices Have Been Dropping Steadily Since May 2022
The decline in rent prices is not a sudden occurrence. According to Redfin’s data, asking rent prices have been dropping steadily since May 2022. This is when the median U.S. rental price shot up to above $2,000 per month. At that point, rents were growing at a monstrous rate of 15% year over year, largely due to the pandemic-induced scarcity of available rental homes.
But now, the situation is very different. The severe supply-demand gap has been steadily closing over the past year and a half, with new construction boosting supply. This has led to some landlords struggling to find tenants and offering rental concessions such as the first month rent-free or free parking. In fact, the rental vacancy rate rose to 6.6% in the third quarter of 2023, the highest level since the first quarter of 2021 during the era of COVID pandemic restrictions.
Apartment Building Sector is Gaining Momentum
The apartment building sector is gaining momentum, with new construction of apartment buildings rising by 7% year over year in the third quarter of 2023. This is the highest rate in the past 30 years. While new construction starts in the sector are declining somewhat, the overall rate of new starts that have just begun is still historically high at 1.2 million.
Redfin’s chief economist Daryl Fairweather sees this as a sign that “rents have started falling in a meaningful way” and that “rising supply means renters have more good options to choose from.”
Socioeconomic Factors at Play
But it’s not just rising supply that is contributing to declining rents. There are larger socioeconomic factors at play, such as the nationwide shift toward renting as a longer-term option. With homeownership becoming less and less affordable, more and more people are choosing to rent for longer periods of time. In fact, currently 1 in 3 people in the U.S. are renters, and they are renting for longer and are older than ever before. This trend is changing the status of renting from a short-term stopgap option to a valid lifestyle choice.
Fairweather notes that “with homeownership so expensive, renting has started to lose its stigma.” Additionally, the ongoing uncertainty about the economy is also contributing to declining rents. People are becoming more cautious about spending and are more conservative about what they consider a reasonable amount to spend on rent than they were even a year ago.
A Silver Lining for Real Estate Investors
If you’re a real estate investor and these trends are making you nervous, there is a silver lining. The rental market is not uniform, and apartment buildings represent only one segment of it. While this segment is currently on a downward trajectory, Redfin predicts that other segments of the rental market may see growth in the coming years. So, while the current state of the rental market may be cause for concern, there are still opportunities for investors to thrive.