Renters are seeing relief and the price peak may be behind us
Renters may be able to finally breathe a sigh of relief. Rent prices are coming down, according to Realtor.com. Realtor.com Chief Economist Danielle Hale says U.S. renters have likely seen the peak in prices for 2023, adding that "we are likely to see that 2022 was the peak for rents and we are starting to see some decline." Hale says areas like Miami and other major cities are still pricier to rent in, but areas in the South and Midwest are still affordable, with Oklahoma City topping the affordability list. However, Hale notes that some of the places that are the most affordable are seeing prices going up faster.
Video Transcript
RACHELLE AKUFFO: Well, let's talk renters now because renters across the US are getting some relief. Prices are falling. Median rent prices fell for the third consecutive month according to Realtor.com.
Our next guest says it will be very unlikely to see a new peak in rents this year. Joining us now is Danielle Hale, Realtor.com Chief Economist. Thank you for joining us this morning.
So as we saw there from the housing data, but what about for rents here, is perhaps the worst-- the worst, the peak of these high rents. Is that now behind us?
DANIELLE HALE: I do think we've seen the peak rent price for 2023. We're at the point in the season where we typically see rents decline. And rents are down from a year ago as they have been for the past few months. And so that means we are likely to see that 2022 was the peak for rents. And we're starting to see some decline.
Now, it's important to keep in mind that these are asking rents. So these are for landlords who are advertising vacant units for rent on realtor.com. So it's not necessarily the same thing as the broader pool of rent paid by all renters across the US, which is measured in the CPI.
So this metric that we track tends to move a little bit faster, which is why we're seeing declines here, even though the measure for CPI inflation for shelter inflation in the CPI is actually still going up.
RACHELLE AKUFFO: And as we have this graphic up here. I mean, in terms of the types of rents that are dropping the fastest, they do seem to be following a similar pattern, but then we actually did see a significant change when it came to rents for studio apartments.
DANIELLE HALE: Yes, studio rents saw the first decline that they've seen in quite a while. They had performed better if you think about the number of households that delayed formation over the past couple of years. They're now starting to get back out. People are very keen on affordability with rent prices still close to long-term highs. And so studios have sort of performed better over the last few months.
By contrast, larger units have seen rents come down faster. But if you take a big step back and look now compared to pre-pandemic, we continue to see that the two-bedroom units and one bedroom unit. So those larger units have had the biggest cumulative rent increase over that period of time. In fact, one bedrooms are up almost 25%. Two-bedrooms are up more than 25% compared to July of 2019.
So it is pricey to rent a home. We're starting to see the momentum shift. But it's a small bit of relief on top of years of higher prices for renters.
RACHELLE AKUFFO: And when people are looking at some of these regions in terms of where the rental markets that have a higher rental burden than, say, a third of your salary, what are some of the hotspots that we're looking at.
DANIELLE HALE: So areas like Miami, major cities where rents have gone up a lot over the last couple of years. People are spending more than 30% of their income on rent for the typical household and the typical asking rent, which is generally what the Department of Housing and Urban Development would consider a cost burden. So a lot of your typical families in these markets are cost burdened.
On the flip side, areas in the south and midwest tend to be more affordable. Oklahoma City is once again the most affordable market if you look at not just the dollar amount that people pay for rent, but also rent compared to income. And then other markets in the Midwest like Columbus and Minneapolis, St. Paul, Cincinnati, and Kansas City. So that part of the country where we see affordability is where a lot of renter interest has been going.
And, in fact, even though those areas are affordable, but we're also seeing prices go up faster there. So some of that affordability is starting to be eroded, making it really challenging for renters across the board. I think because of that, we're going to continue to see interest from renters who want to become homeowners and potential first time buyers.
As Danny noted, we see that 30% of home sales in the last month were from first time homebuyers. So that's going to be an important channel. Fortunately, some of the savings that renters are going to be able to realize on rent will probably help them accumulate savings for a down payment a little bit faster and maybe better be able to realize those dreams of homeownership.
RACHELLE AKUFFO: So then as we look at some of the things that are bringing rental prices down, including of course, the supply of rental properties there. How much more is also needed then to meet the current demand?
DANIELLE HALE: Yeah. So we have a housing shortage when we're looking at single family homes for sale or multi-family homes that are typically built for rent. Fortunately, builders have been working to build in, increase the supply of housing against that shortage, but it's a substantial shortage. Our estimates range from 2 to 6 million homes that we are under built over the last decade kind of depending on the assumptions that you make.
And for comparison, we build about 1.4 million homes every single year. So it's a several year deficit that we need to build out of fortunately, especially on the multifamily side, we saw a record number of multifamily units under construction.
It takes a while for those to go from start to completion so that they're move-in ready. But we expect to see those hit the market in the later part of 2023 and stretching into 2024. That's one of the reasons that we expect this relief that we're starting to see in rent to continue as we move into 2024.
RACHELLE AKUFFO: So at least some welcome news for renters who are sort of stuck on the sidelines still waiting to get into perhaps their first home. We appreciate you joining us this morning. Danielle Hale, Realtor.com Chief Economist, thank you so much.
DANIELLE HALE: Absolutely.
