The median asking rent in the U.S. fell 0.4% to $1,937 in March from a year earlier — the first annual drop since the Covid-19 pandemic hit in March 2020 — as the still-high cost of living and increased economic uncertainty hampered rental demand, according to a recent Redfin (RDFN) report.
“Rents are falling, but it feels more like they’re just returning to normal, which is healthy to some degree,” said Dan Close, a Chicago-based Redfin real estate agent. March’s median asking rent in the state was 9.2% below the year-ago mark.
The overall slump in U.S. rents largely stemmed from a supply glut resulting from the pandemic homebuilding boom. And with rental vacancies on the rise, landlords have been reducing rent and offering concessions.
Meantime, the median asking rent didn’t budge M/M in March, remaining 19.9% higher than it was at the onset of the pandemic. At the same time, wages increased at roughly the same pace.
During the pandemic, some “tried to sell but didn’t get a satisfactory offer due to slowing homebuyer demand, Close added. “Now we have a lot of rental supply, which is bringing prices down because renters have more options.”
The metro areas that saw the biggest rent declines featured Austin, Texas (-11%), Chicago, Illinois (-9.2%), and New Orleans, Louisiana (-3%). By contrast, Raleigh, North Carolina (+16.6%), Cleveland, Ohio (+15.3%), and Charlotte, North Carolina (+13%), were among metro areas logging the largest rent gains.
A big part of the reason why consumer price inflation remains stubbornly high is — you guessed it — rent, which generally lags home prices. While headline CPI slowed a full percentage point to 5.0% Y/Y in March, core CPI, which strips out volatile food and energy prices, accelerated to 5.6% from 5.5% in February.
But things appear poised to improve on the core front as rent inflation starts to retreat. Odeta Kushi, deputy chief economist at First American Family of Companies, took to Twitter saying “both owners’ equivalent rent (OER) and primary rent, (~41% of Core CPI), rose 0.5% after bouncing between monthly increases of 0.6%-0.8% for approximately a year. More shelter inflation deceleration to come.”
“Shelter inflation deceleration will drag the overall CPI lower in the coming months, demand growth appears to be slowing & so does wage growth,” Kushi added in a follow-up tweet.
For the week ended April 13, the 30-year fixed-rate mortgage averaged 6.27%, down slightly from the 6.28% mark in the week prior and up from 5.0% a year before.
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