The median U.S. asking rent in July is only $16 below the record high set in August 2022, according to Redfin, with the average rent being $2,038. It noted that while rent gains cooled over the past year “big bargains are still often hard to come by given rents are near record highs.”
It is yet another metric to help guide apartment owners as they try to forecast where rents are headed. While rents are clearly normalizing, landlords rely on a myriad of numbers, statistic providers and theories as they set their own strategies. To cite just one: Data analytics firm Markerr’s outlook in July for the next five years was that the top 100 US markets will see a 3.9% increase in rent through 2024, and a 5% jump the year after, followed by more normal 3% to 1.5% growth in years three to five.
GlobeSt.com spoke with several experts to see how they gauge the market’s direction.
Greg Bates, CEO of GID, a real estate owner and fiduciary, tells GlobeSt.com that rent growth, in the aggregate, tends to follow income levels that rise and fall with the state of the economy.
“This cycle, rents rose sharply following historically strong wage growth,” Bates said. “Rent levels have also risen based on an influx of high-income households choosing to rent: the number of renter households earning over $100,000 has nearly tripled since 2010.
“This has allowed rents to increase faster than income growth alone would suggest without eroding affordability for the middle and upper tiers of the rental market. In contrast, the affordable segment of the US rental market remains underserved, and increasing attainable housing remains a primary focus for the industry.”
Bates said that while rent growth can be volatile in the short term, over the long term it is well governed by market forces.
“The data shows that rent spikes are usually short-lived and offset by rent decreases as supply increases and the economy cools,” he said.
“Over the past 20 years, national apartment rents have increased by an average annual pace of less than 3%, in step with income gains during the same time, suggesting the market is efficient and reaches equilibrium through natural forces. We expect rents, along with incomes, to moderate and track inflation going forward.”
Adam Levin, Executive Managing Director of Levin Johnston, tells GlobeSt.com that while the pace of national rent growth has eased, rent levels are still surpassing historical averages and the outlook for rent growth should remain relatively steady for the rest of 2023.
“As supply chain constraints and high cost of labor continue to slow construction, demand for rental properties is exceeding the available supply, leading to strong fundamentals in stabilized markets.”
California’s Bay Area, particularly Silicon Valley, is experiencing near-record-high apartment rents due to strong fundamentals, low vacancy rates, and sustained demand despite economic challenges, Levin said, adding that Silicon Valley maintains the Bay Area’s lowest apartment vacancy rate at 4.4% in Q2 and San Jose stands out as the only major US market where the average effective rent surpasses $3,000 per month.
Neil Schimmel, Investors Management Group Founder & CEO, tells GlobeSt.com, “Seeing a 0.3% rent growth year-over-year might not seem like a seismic leap, but it’s a window into some important dynamics at play.
“Nationwide rent growth data gives us a panoramic view of the economic pulse and shifts in supply and demand. But where it gets interesting is at the micro level.”
Schimmel said that as buyers, his analysis doesn’t stop at a national or regional average.
“We dive into single markets and neighborhoods. We’re boots-on-the-ground in the neighborhoods we’re shopping, getting real-time data down to the individual property level.
“We’re looking at the granular data, such as what operators are getting on new leases as compared to renewals. There, the story can change quite a bit from a national data set. We continue to make sense of these patterns and leverage them to make smart choices for our properties and portfolio.”
Jonathan Miller, a member of The Counselors of Real Estate and President and CEO of Miller Samuel in New York City, tells GlobeSt.com that even as mortgage rate growth slows, the upward pressure on rental prices remains as “very low unemployment and high wages are the perfect cocktail for higher rents.
“However, there are some signs that rental price growth may be nearing peak levels. In Manhattan, one of the highest-cost rental markets in the nation, leasing volume has begun to slide as consumers have likely entered an affordability threshold and can’t continue paying higher rents.”
Javier Lattanzio, Director of Sales and Rentals at Time Equities, tells GlobeSt.com, “It’s a perfect storm. The current rise in apartment rents is a result of the lack of inventory. Homebuyers are experiencing high interest rates, which the result makes them more apprehensive to purchase a home. It’s caused rents to increase upwards of 10%, and it’s still increasing. We are at the highest of the market on the rental side.