BAM Key Details:
- A new Redfin report shows rent growth slowing for the seventh consecutive month in December 2022.
- The median asking rent rose only 4.8% year-over-year, the smallest increase since July 2021. One year ago, rents grew at over three times that pace.
A new Redfin report shows rent growth slowing for the seventh straight month in December. The median asking rent increased to $1,979, rising by only 4.8% year-over-year, the smallest increase since July 2021.
Just one year ago, rents grew at more than three times that pace.
December also marks the fourth straight month of single-digit rent growth after almost a year of double-digit jumps. Rents fell 1.4% compared to the previous month and 3.6% from the peak of $2,053 in August.
Rents have room to fall
Rents were still high enough at the end of 2022 to put a damper on rental demand. Inflation and economic uncertainty didn’t help, either.
Rents have room to fall. While they’ve cooled significantly from their peak, it still costs the typical renter 20% more to take on a new lease than it did two years ago. An increase in the number of rentals on the market should also cause rents to ease in the coming months. Rental supply is growing due to an influx of construction in recent years, ebbing household formation and a slow homebuying market, which is driving many homeowners to rent out their properties rather than sell.
Agents in the field have seen sellers turning to the rental market because their homes aren’t selling at the price they want.
Reluctant to drop list prices, even when their homes have sat on the market for weeks, some have decided to rent their homes instead of selling at a lower price.
Rents Dropped in 14 Major U.S. Metro Areas
Rents actually declined in 14 major metro areas. Minneapolis saw an 8.5% annual drop in their median asking rent in December—the biggest drop among all 50 of the biggest U.S. metros.
Here’s the full list with each city’s drop in rental costs:
- Minneapolis, MN: -8.5%
- Oklahoma City, OK: -6.4%
- Phoenix, AZ: -5.0%
- Houston, TX: -4.6%
- Milwaukee, WI: -4.1%
- Chicago, IL: -3.6%
- Baltimore, MD: -2.1%
- Austin, TX: -2.0%
- Birmingham, AL: -1.8%
- Los Angeles, CA: -1.5%
- Virginia Beach, VA: -0.9%
- Jacksonville, FL: -0.8%
- New Orleans, LA: -0.4%
- Las Vegas, NV: -0.4%
Cities with the largest rent increases
Of all the metros seeing an annual uptick in rental costs, here are the top ten with the largest increases:
- Salt Lake City, UT: 29.8%
- Raleigh, NC: 24.0%
- Indianapolis, IN: 16.3%
- Cleveland, OH: 14.6%
- Nashville, TN: 11.7%
- Charlotte, NC: 10.6%
- Buffalo, NY: 9.6%
- Kansas City, MO: 9.4%
- Columbus, OH: 7.7%
- St. Louis, MO: 7.4%
Top takeaways for real estate agents
If you’re serving an area that has seen a drop in rental costs, you may see more potential clients choosing to rent—or continue renting—until they see a drop in the cost of purchasing a home. You need to be prepared with both the short- and long-term benefits and costs of purchasing a home now compared to waiting and hoping for more favorable conditions.
Clients who see the bigger picture more clearly are better able to make decisions they won’t regret. And, ultimately, that’s what you want for them.
If you’re serving an area that has seen an annual increase in rental costs, keep that information handy. And along with providing it to potential buyers, consider showing it to sellers who are frustrated when their home doesn’t sell at the price they want—especially if they’re unwilling to reduce their home’s list price.
They wouldn’t be the first to decide to rent out their home. And if they set their rental price competitively, they can attract plenty of qualified candidates and earn a steady passive income.
If your business offers this service, you can also help your renting clients to find the best tenants for their properties—while keeping them informed of any changes in the market.