BAM Key Details: 

  • A new Redfin report shows the first annual rent decline in three years, with the median rent dropping 0.4% year over year in March to its lowest point in 13 months, largely due to oversupply of multifamily housing, as well as inflation and economic uncertainty. 
  • In February, multifamily housing starts and completions each reached their second-highest levels in over three decades. 

Rents in the U.S. have seen their first annual drop in three years, according to a new report by Redfin. The median rent dropped an average of 0.4% year-over-year in March, falling to its lowest point in 13 months. 

Redfin-Rents-post-first-annual-decline-chart

Source: Redfin

That said, the decline isn’t large enough for most renters to notice, and it certainly doesn’t feel like rental costs are falling. If anything, they’re more or less returning to normal—or what passes for normal in today’s market. 

Here’s what you need to know. 

Rents rose as demand grew

Rents soared during the pandemic and remained high as mortgage rates climbed. Demand for rentals rose as many would-be buyers were priced out of the market by rates north of 7%. But with today’s rates back in the 6s, more renters are motivated to become homeowners. 

The median asking rent in March (2023) was the same as February and 19.9% ($322) higher than it was at the start of the pandemic in 2020, though wages also rose at nearly the same rate during that time. 

Redfin-March-median-asking-rent-chart

Source: Redfin

Chicago Redfin agent Dan Close has seen the median asking rent for his market drop 9.2% compared to a year ago. He compares the rent decline to the price of eggs, which has soared over the past several months. For him, rents are just “returning to Earth.” 

Rents climbed over the past couple of years because incomes rose and household formation increased as more millennials started families. But with economic uncertainty persuading more people to stay put rather than move, household formation is slowing. 

Rents drop due to inventory surplus, inflation, and economic uncertainty

The pandemic homebuilding boom has led to an oversupply of multifamily housing, which is largely the reason why rents dropped year over year in March. 

In February (the last month for which this data is available), the number of multifamily starts and completions each climbed to the second-highest level in over three decades. 

Completed multifamily building projects with at least five units climbed a seasonally-adjusted 72% year over year to 509,900—reaching the highest level since 1987, apart from February 2019. 

Likewise, multifamily building starts with at least five units climbed a seasonally-adjusted 14.3% year over year to 608,000—the highest since 1986, with the exception of April 2022. 

Redfin-Housing-starts-completions-chart

Source: Redfin

Rents Declined Year over Year in 13 Major U.S. Metros

Thirteen major metro areas in the U.S. saw annual rent declines

  1. Austin, TX (Rents declined by 11% year over year)
  2. Chicago, IL (-9.2%)
  3. New Orleans, LA (-3%)
  4. Birmingham, AL (-2.9%)
  5. Cincinnati, OH (-2.9%)
  6. Sacramento, CA (-2.8%)
  7. Las Vegas, NV (-2.4%)
  8. Atlanta, GA (-2.3%)
  9. Phoenix, AZ (-2.1%)
  10. Baltimore, MD (-2%)
  11. Minneapolis, MN (-1.6%)
  12. Houston, TX (-1.5%)
  13. San Antonio, TX (-1.3%)

A lot of people in Chicago became landlords during the pandemic. Some were looking to cash in on soaring rents. Some rented out their homes because selling would’ve meant giving up their rock-bottom mortgage rate. Others tried to sell but didn’t get a satisfactory offer due to slowing homebuyer demand. Now we have a lot of rental supply, which is bringing prices down because renters have more options.

Dan Close

Chicago Redfin agent

Top 10 metros with the largest annual rent increases

Some markets saw an annual rent increase in March, with Raleigh, Cleveland, and Charlotte, NC, at the top of the list. 

  1. Raleigh, NC (Rents increased 16.6% year over year)
  2. Cleveland, OH (15.3%)
  3. Charlotte, NC (13%)
  4. Indianapolis, IN (10.5%)
  5. Nashville, TN (9.6%)
  6. Columbus, OH (9.4%)
  7. Kansas City, MO (8.1%)
  8. Riverside, CA (7.2%)
  9. Denver, CO (7%)
  10. St. Louis, MO (4.2%)

According to Nashville Redfin agent Jennifer Bowers, three factors have sent Nashville rents soaring: investors, elevated home prices, and a strong local job market. 

During the pandemic, many investors bought homes in Nashville and turned them into rental properties to benefit from the low mortgage rates and growing rental demand, which allowed them to hike up their rents. 

And while investors have slowed down their home purchases, they haven’t lowered their rents. 

Skyrocketing home prices plus soaring mortgage rates made homeownership unaffordable for many would-be buyers and increased demand for rentals. 

The average 30-year-fixed mortgage rate is now at 6.61%, which is down from last fall’s peak of 7.08% but still well over the 5% from April 2022, increasing the typical homebuyer’s monthly mortgage payment by more than $300. 

And while March brought the first annual drop in home prices since 2012, they’re still more than 30% higher than they were at the start of the pandemic. 

Top takeaways for real estate agents

Depending on what the Fed does at the next FOMC meeting, mortgage rates could either keep climbing or start trending downward as consumer confidence grows. 

For now, the volatility of rates will probably keep many renters in your market confused as to whether they should even look. Be the agent who encourages them to explore their options now and who honestly and clearly articulates the pros and cons of buying a home right now. 

As for your sellers, now is the best time to be the loudest agent in your office, making calls, and having conversations to get more sellers listing their homes. Learn from the best how to start conversations and to have more of them than anyone else in your market.