The Evolution of Rental Prices and Affordability from the Pandemic to the Present (January 2024 Rental Market Report)

It is common for asking rents to start rising in January after they had stagnated or even decreased during the winter. We anticipate an increase in rental demand as the holidays come to an end and spring approaches. The primary concern for the rental market, though, is whether the increasing demand can keep up with the new supply coming in.

Over the last four years, rental rates have increased by 7% annually on average, or 29.4% since the start of the pandemic. But only in 2021 did around two thirds of this rise occur. A surge in apartment building and a deceleration in economic growth have alleviated the pressure after this steep increase. As of right now, rents have increased 3.4% from the previous year to $1,958, according to the Zillow Observed Rent Index (ZORI). This yearly growth rate is more than 70 basis points below the pre-pandemic average of roughly 4.1% recorded in 2018 and 2019.

47 of the 50 largest metro regions have higher rents than they were a year ago. Boston (6.3%), Cincinnati (6.8%), Louisville (6.6%), Providence (7.7%), and Hartford (7%), have the largest annual rent increases.

In sixteen significant metro areas, monthly rent drops were observed. The cities with the biggest monthly declines are Riverside (-0.3%), Dallas (-0.3%), Buffalo (-0.4%), Austin (-0.5%), and San Diego (-0.4%).

The priciest markets have shifted.

The ranking of the priciest rental markets in the country has changed. In terms of housing costs, San Francisco, which was once the second most expensive after San Jose, has fallen to fourth place, now below New York and Boston.

Seattle and Washington, D.C. have had slower rent rises than other expensive metro areas; in fact, Sacramento has pushed Seattle out of the top 10 most expensive markets. Florida's Miami and California's Riverside outgrew both Seattle and Washington, D.C. It's noteworthy that San Diego now has rental prices higher than Los Angeles.

The pandemic has caused substantial changes in the rental market. The number of units under construction is close to record, indicating that the landscape is still changing, but not evenly throughout all regions.

Incentives in the rental market changing

Early indications indicate that there is enough demand to cover the temporary excess of available rentals during this season, as the growth rate of asking rents is still modest when compared to pre-pandemic levels. TJust a percentage point above the record low recorded in the last quarter of 2021, the national rental vacancy rate remained stable at 6.6% in the fourth quarter. Furthermore, after rising for seven straight months, the percentage of Zillow rental listings that provide concessions started to decline in January, falling by 0.7 percentage points to 31.9%.

In 31 significant metro regions, the percentage of rents with concessions is lower on a monthly basis. The cities with the biggest declines were San Jose (down 3.3 percentage points), Boston and Cleveland (both down 2.9 percentage points), St. Louis (down 2.8 percentage points), and Salt Lake City (down 3.4 percentage points).

Deals are still plentiful for tenants who are actively seeking to sign a new lease, even in spite of these changes. With annual gains recorded in 44 of the 50 largest metro areas, the percentage of rental listings nationwide that advertise concessions is still 6 percentage points more than it was a year ago. Salt Lake City (up 26.5 percentage points), Raleigh (up 18.8 percentage points), Charlotte (up 18.5 percentage points), Austin (up 17.7 percentage points), and Jacksonville (up 17.4 percentage points) saw the most year-over-year increases in rental listings providing concessions.

Rental concessions are still rising month over month in a few locations, including as San Antonio (up 1.6 percentage points), Philadelphia (up 2.2 percentage points), Pittsburgh (up 1.8 percentage points), Las Vegas (up 2.5 percentage points), and Richmond (up 4.5 percentage points). Renters in these markets probably have more breathing room because asking rate rent growth tends to be flat or significantly slower under increased concessions.

Strength in the increase of single-family rents

Single-family rentals are under more pressure to rise than multi-family rentals, whose monthly asking rates have only climbed by 2.7% from the previous year and are still declining. The multi-family industry has had a construction boom, but single-family rents have not. Due to this circumstance, high obstacles to homeownership, and a dearth of listings by current owners for sale, single-family rent has increased by 4.7% over the previous year. Well into 2024, single-family rent growth is predicted to outpace apartment rent increase, continuing to grow at a rate more in line with pre-pandemic pressure.

A little improvement in rent affordability is seen despite slower increase.

For today's renters, who have endured severe financial hardship due to both general and rent inflation throughout the epidemic, slower rent increase is ultimately welcome news. Rent affordability, or the percentage of a typical household's income that would go toward paying market rate rent, has maintained at 29% over the past year despite wage growth slowing but remaining steady. From the record high reached in June 2022, that is a decrease of one percentage point.

Minneapolis (19.8%), St. Louis (19.8%), Salt Lake City (19.9%), Austin (20.4%), and Buffalo (20.4%) are the metro regions with the lowest rents. Miami (42.4%), New York (38.3%), Los Angeles (36.5%), Tampa (33.4%), and Riverside (33.3%) are the metro regions with the least cheapest rentals.

However, that is presuming you are the typical household, the one whose income is rising to keep up with rising costs. The income required to pay rent, based on the market rate, increased to $78,304 in January, up 3.5% from the previous year and a startling 29% from before the epidemic.

Prospects for the rental markets in the future

Prices, employment, and income growth collectively, or the macro economy, should all continue to decline. The main goals of this adjustment are to lessen the financial burden on those who haven't yet realized the benefits of a thriving market and to bring down inflation. Rent increases are typically slower in sluggish economies.

Nationwide apartment building is approaching record levels, which should keep the pressure on the rental market moderate. Nevertheless, people move around a lot. This implies that there will be more movement given the variety of standards and lifestyles available across the nation. The population of young adults—individuals in the prime of their working and moving years—is about to reach a peak. As a result, rent increases might resume in the near future, particularly in boom markets.