The US property market, particularly the rental sector, remains sluggish with decreasing rent prices and increasing vacancy rates for landlords.
Recently released statistics have demonstrated how the US property market’s rental sector is performing. The September Rental Report by Realtor.com revealed rent prices dipped for the fifth consecutive month.
In September, median asking rents in the 50 biggest metro areas dropped to $1,747. This was down $29 from the peak seen in July 2022. And across the board, rent prices dipped on an annual basis for units of all sizes.
There has been an uptick in construction rates of multi-family homes in the US property market, which has pushed down rents for 0-2 bedrooms the most. As inventory is starting to increase nationwide, tenants are quickly claiming the most affordable rental units.
Danielle Hale, chief economist at Realtor.com, commented: 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.
“However, even with an influx of new apartment units coming onto the market and putting a lid on rent growth, renters are claiming these new apartments faster than prior to the pandemic.”
Sluggish rental growth in US property market
Additional data from Redfin has revealed that asking rents were little changed from a year earlier for the seventh consecutive month, showing a lack of growth in the rental space of the US property market.
Certain areas that recorded outsized growth during the pandemic are now seeing the biggest rental prices drop across the US property market. This includes areas in the West and South like Phoenix, Dallas and Miami.
Interestingly, rents are climbing the fastest in the most affordable region and are falling the fastest in one of the least affordable. This is happening as housing affordability is becoming a problem for many people in the US.
Increasing void periods impacting landlords
The research by Redfin demonstrates that rents continue to remain sluggish as vacancy rates are rising for US investors. In the third quarter of 2023, the rental vacancy rate hit 6.6%. By comparison, the homeowner vacancy rate was 0.8% in that quarter, which was the second lowest level since records dating back to 1956.
The rental market has cooled partly because there is new inventory, providing renters with an increasing number of options to choose from. This has led landlords to grapple with increasing void periods, giving them less leverage to increase rents.
Heather Mahmood-Corley, local Redfin Premier real estate agent in Las Vegas, said: “During the pandemic, you’d see five people applying for the same unit, and you’re not seeing that anymore.
“Rentals are sitting on the market for longer. Landlords are willing to work with tenants on lease terms and concessions because consumers are just more skittish these days. A lot of folks are staying where they are instead of moving because there’s so much uncertainty in the economy and in the world.”
Construction of apartment buildings
In the third quarter, the number of completed apartments across the US increased 4.9% year-on-year to a seasonally adjusted annual rate of 1.2 million. This is one of the highest levels seen across the past 30 years.
However, the number of apartment buildings on which construction has started plunged 26.5% year-on-year. That’s the biggest fall since 2010 and the lowest level since 2020. Building starts are often considered a leading sign of what’s happening in the property market with building completions a lagging indicator.
Redfin explained that building has likely slowed down due to increasing interest rates, sluggish rental growth and even overbuilding in certain areas. Other recent research has even shown that property investors have been pulling back in the US property market as they find better investment prospects in other countries, such as the UK property market with a strong and growing private rented sector.
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