Rent prices are falling the fastest in these 10 markets

Median asking rents are starting to drop in many markets, according to new statistics From Redfin, From Turnaround skyrocketing rental prices Celebrated last spring. The average national asking rent fell to $1,937 in March, a 0.4% decline year-over-year. The median asking rent prices are lower than in the past year, and days of bidding war Many markets for an apartment are over. This is a sign of recovery from exorbitant rent prices, which resulted in part from the pandemic-induced demand for more space. But rents are still about 20% higher than when the pandemic began.

Why are rent prices freezing?

From the supply side, new housing construction has finally caught up with post-pandemic demand. In 2022, there were more multifamily housing starts with five units or more than in any year since 1986. census bureau data, And the number of completed multifamily buildings with five units or more rose 72% in February, reaching the highest level in decades.

Rental demand is also coming down. Due to fears of rapidly rising rent prices and an upcoming recession in 2022, tenants are discouraged from moving and encouraged to stay in their existing leases. and housing affordability issues are causing more older people transferred to With their adult children, even before their health declines. Hiring More Young People rooms And parents too. these factors are causing rental vacancy rate To increase, returning to its long term average.

short term rental market presents a similar picture—investors rushed to meet demand for vacation rentals during the pandemic, and a surplus of properties is causing vacancy rates to rise. This is true even if demand remains amazingly strong Inflation- amid a strained budget and fears of a recession.

Where are rent prices falling the most?

1. Austin, Texas (-11%)
2. Chicago, Illinois (-9.2%)
3. New Orleans, Louisiana (-3%)
4. Birmingham, Alabama (-2.9%)
5. Cincinnati, Ohio (-2.9%)
6. Sacramento, California (-2.8%)
7. Las Vegas, Nevada (-2.4%)
8. Atlanta, Georgia (-2.3%)
9. Phoenix, Arizona (-2.1%)
10. Baltimore, Maryland (-2%)

The biggest declines in median asking rent prices were in Austin, where asking rents declined 11%, and in Chicago, where asking rents declined 9.2% over the previous year. Last May, rent prices had the highest year-over-year increase of 48%, according to Austin. redfin data, This was a result of tech companies moving into the area and attracting new high-earning residents at a time when mortgage rates were rising. In the second quarter of 2022, lead data Started showing to renters looking to move out of Austin. Now due to lack of demand, the rent prices are normalizing in the city.

Cincinnati saw an equally significant year-over-year rent increase last May, so rents are normalizing there as well. According to Chicago Redfin real estate agent Dan Close, rental supply increased during the pandemic in Chicago as new landlords tried to cash in on higher rents, and many people opted to rent rather than sell at the tail end.

Where are the rents rising?

1. Raleigh, North Carolina (16.6%)
2. Cleveland, Ohio (15.3%)
3. Charlotte, North Carolina (13%)
4. Indianapolis, Indiana (10.5%)
5. Nashville, Tennessee (9.6%)
6. Columbus, Ohio (9.4%)
7. Kansas City, Missouri (8.1%)
8. Riverside, California (7.2%)
9. Denver, Colorado (7%)
10. St. Louis, Missouri (4.2%)

In some metros, rents just keep rising, but even the 16.6% year-over-year increase in asking rents in Raleigh doesn’t come close to the growth shown in last year’s data. A thriving tech scene in cities such as Raleigh, Charlotte and Nashville continues to attract new residents, keeping rent prices inflated despite the construction of new residential buildings.

At the same time, higher home prices and rising interest rates turned many potential homebuyers into renters. For example, in Denver, due to skyrocketing home prices in recent years, a Growing group of high income renters Whose price was outside the ownership of the house.

Jennifer Bowers, a Redfin real estate agent in Nashville, says rental demand in the city is also on the rise as a huge influx of investors bought properties in the area. This contributed to an increase in demand by increasing competition for early homes, making it possible for investors to rent at top-dollar. Investors Own 26% Of Home Sales In Tennessee Through 2021 pew research,

What does this mean for investors

This data doesn’t necessarily mean that investors should flock to cities like Raleigh and Cleveland for diversified investment opportunities. Finally, imagine you bought a house in Austin last March in an effort to capture the high rents. 38% year-on-year, After a year, you’ll be reducing your asking rent and waiting for a average decline of 16.3% To convert to household values ​​from year to year.

Thinking one step ahead can give better results. If you can find a market where home values ​​are still relatively low, and rent prices are likely to increase due to projected job growth in the area or overflow from nearby centers, you can look for local renters. Will be in a better position to reap the rewards. increases.

Still, there is no crystal ball to predict the correct strategy. Real estate and rent prices will always fluctuate, although some markets are more stable than others. Being flexible and patient can work even better than timing your purchases.

Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.