There is no doubt rent is too high for many Americans, but thanks to a recent boom in the construction of apartment buildings, lower mortgage rates, and the Federal Reserve’s success in curbing inflation, rents are beginning to come down in some places, including Manhattan.
In the New York City borough home to skyscrapers and Times Square, the median rent in November fell to $4,000, down 4.6% from October and down 2.3% from a year ago, according to a monthly report released Thursday from the brokerage firm Douglas Elliman and Miller Samuel Real Estate Appraisers and Consultants.
It was the first time monthly median rent had fallen, year-over-year, in 27 months.
While the number of new leases signed in Manhattan was up about 10% from a year ago, new leases dropped 29% from October. Vacancy rates ticked up on an annual basis in November for the 14th consecutive month but remained under 3%.
Rents have pulled back from all time high of $4,400 reached in August because renters seemingly can’t pay more.
“The consumer has reached an affordability threshold,” said Jonathan Miller, president and CEO of Miller Samuel. “There is only so much more they can pay. Sure rents have seen a 9% decline from the summer, but they are still more than 11% higher than pre-pandemic levels in November 2019.”
Falling rent is also partly the result of the Federal Reserve’s historic series of rate hikes that have reined in inflation, Miller said.
“The Fed was successful in taming inflation, and housing is an important part of this decrease in inflation,” Miller said.
Another contributing factor to an easing in the rental market is that mortgage rates are trending down and that some of the would-be homeowners who were creating competition in the rental market are moving to the purchase market, Miller said.
“There will be more rent declines well into 2024 because mortgage rates are falling,” he said.
In Manhattan, a studio had a median rent of $3,000, which was unchanged from October and up 3.4% from a year ago; a one-bedroom apartment had a median rent of $4,000, down 2.4% from October but steady, compared to a year ago; and a two-bedroom apartment was $5,410, up 0.2% from October and down 1.6% from a year ago.
“I don’t want to give the impression that rents are dirt cheap – they are coming down from record highs,” Miller said. “But they will continue to trend down into 2024 unless there is a big adverse economic event.”
National rents see biggest drop since 2020
The national median asking rent in November declined 2.1% from a year before to $1,967. It’s the biggest annual drop since February 2020 -– according to a report on Wednesday from Redfin, a real estate company.
Asking rents were also down 0.6% from October.
Rent prices in this study reflect the median asking price of apartments that were available for new renters during the report month, not the median of what all renters are paying.
Still, this drop pales in comparison with how quickly rent costs have climbed in the past few years. Rents are still up 22.1% from November 2019, before the pandemic housing boom, and are just 4.2% below the $2,054 record high hit in August 2022.
But the amount landlords can ask has lost some steam over the last year and a half as more apartments hit the market. As a consequence, many landlords are now struggling to fill vacancies, and some are cutting their asking rents.
Even some landlords who aren’t cutting the monthly rent payment just yet are offering one-time sweeteners, known as concessions, to attract renters. These include incentives such as a free month’s rent or reduced parking costs -– according to the report.
Renters are finally catching a bit of a break, said Daryl Fairweather, Redfin’s chief economist, in a statement.
“Better deals are easier to come by because landlords are doling out concessions and rents have started falling in a meaningful way,” Fairweather said. “Rising supply also means renters have more good options to choose from.”
With high home prices and soaring mortgage rates, buying a home has become out of reach for many would-be homebuyers, who instead are turning to renting she said.
Fairweather said Americans are starting to tighten their belts due to economic uncertainty. That, plus slowing household formation and affordability challenges driven by inflation are also contributing to bringing down rent.
“Still, we may see more renters jump into the homebuying market next year as home-sale prices and mortgage rates tick down,” she said.
Apartment construction still going strong
The number of completed apartments in the U.S. rose 7% in the third quarter from a year ago to a seasonally adjusted annualized rate of 1.2 million, which is one of the highest levels of the last three decades, according to data from the U.S. Census Bureau and the Department of Housing and Urban Development. The third quarter is the most recent period for which data is available.
There are more apartments in the pipeline, but construction is beginning to level off. Apartment starts fell 26.2% year over year in the third quarter to a seasonally adjusted annual rate of 1.2 million, according to the Census Bureau and HUD.
But with more buildings, renters have more choice. As a result, vacancies are rising. The rental vacancy rate rose to 6.6% in the third quarter according to the Census Bureau, which was the highest level since the first quarter of 2021.
Rents climb in the Midwest, fall in the West
Median asking rents held steady or fell in November in all regions except the Midwest, where asking rents climbed 4.6% to $1,434.
But while the price of rent rose in the Midwest, it was still less than rent in other regions where it dropped. Median asking rent in the West was down 1.8% from last year to $2,347; in the South it was down .4% to $1,635, and in the Northeast it was unchanged at $2,447.
The relatively attractive cost of living in the Midwest, which is the most affordable region in the country, is attracting people who are prioritizing housing affordability and increasing demand, Redfin found.
