May 2023 brought some unpleasant news for landlords and developers. For the first time in Realtor.com’s data history, there was a year-over-year rent decline for 0-2 bedroom-units since numbers started to be tracked three years ago. The two-bedroom properties dropped 0.5% to $1,923, which was $10 lower than a year ago and $47 lower than at the July 2022 peak.
Smaller apartment units, meanwhile, saw rents increase with studios going up 2% to $1,463 year-over-year and one-bedrooms climbing 0.4% to $1,628 over the same period.
When it comes to rent growth, the larger unit rents showed the highest growth rate over the last four years, up by $417 or 26%. For one-bedroom units on a YOY basis, the rent growth was 0.4% this past May. In contrast, rent growth for studios was 2.0%, indicating that renters have prioritized affordability with studios outperforming the larger two-bedroom units during the last 10 months.
How Location Factors
Rents are headed down in the South where they dropped 0.7% from a year ago. The top Southern markets showing the biggest YoY rent declines were Austin at -5.6%, Tampa at -4%, Dallas at -3.6%, Charlotte at -3.5% and Atlanta at -3.1%. In the West, the decline was 3% lower than a year ago. San Jose, Calif., was the only large metro in that region seeing rent growth, but it was only one-twentieth of what it was a year ago.
In the Midwest, rents slowed but continued to increase 4.5% year-over-year. The growth is said to be due to markets in the Heartland offering greater affordability. Six of the top 10 metros experiencing faster YoY growth are located there, including Columbus at 9.3%, St. Louis at 7.7%, Cincinnati at 7.5%, Indianapolis at 7.3%, Milwaukee at 6.2% and Detroit at 5.1%. As renters search for affordable units, Midwestern metros that offer the lower-rent options are expected to experience stronger demand, which, in turn, will lead to accelerated rent growth.
The densely populated northeastern metros such as New York City, Pittsburgh and Boston tell another story. They continued to experience faster growth with NYC at 6.8%, followed by Pittsburgh at 3.8% and then Boston at 3.3%. Realtor.com’s possible explanation is that the areas there have a robust labor pool, which may have contributed to increased demand for rental housing.
Overall, the median asking rent was $1,738, which was down by $38 from July 2022’s peak but up by $3 from April 2023 and $344 or 24.7% higher than the same time before the pandemic in 2019. The 2023 mid-year forecast has led to projections that the median asking rents will show a small annual decline at a rate of -0.9%, but in the second half of this year, demand for rental properties is expected to remain strong. Part of this is due to fewer renters opting to buy a home with housing prices and mortgage rates remaining high. Many of these renters have a strong incentive to remain put to save money and be able to act when the situation changes.