National rent prices rose to a near-record high in August as inventories failed to keep up with demand, according to a new report from Rent.
Research found that median national rent prices advanced 0.71 percent month over month, to $2,052, bringing rent levels within $2.00 of last year’s all-time high of $2,054. This was up from the previous month’s 0.41 percent increase.
By comparison, the median mortgage payment for a single-family residential property was $2,161 in July, Mortgage Bankers Association (MBA) data show.
Despite the sizable jump, the growth rate came in below this year’s average. Since February 2023, monthly price changes have averaged 0.97 percent. At the same time, rents have climbed 6 percent since the February low of $1,937, adding $115 to tenants’ monthly rents.
“It’s just a continuation of a trend we’ve been seeing since February, where prices have been steadily increasing,” John Leckie, a research analyst for Rent, told The Epoch Times.
But the trends suggest that there has been an enormous drop in demand, and more supply is coming online, Mr. Leckie noted.
“So, both of those things are working together to keep the rent growth below what it would probably normally be,” he said.
On a year-over-year basis, prices dropped by a tepid pace of 0.06 percent.
At the local level, four states experienced double-digit year-over-year rent increases: Mississippi (19.3 percent), Iowa (14.13 percent), North Dakota (12 percent), and South Dakota (11.65 percent). In total, ten states reported gains.
This has been largely driven by inbound migration to these regions as they are popular destinations for households moving away from the northeast and west coast.
“If you’re having an influx of demand with fewer places for people to live or not have enough to supply or supply to meet that demand, your prices are going to rise,” Mr. Leckie stated.
State of the US Rental Market
U.S. housing costs for homebuyers and renters have skyrocketed over the last couple of years.According to the Bureau of Labor Statistics, the shelter index within the Consumer Price Index (CPI) remained above 7 percent and rose 0.3 percent from July to August. The rent of primary residence was nearly 8 percent and climbed 0.5 percent month over month.
Industry experts believe relief could be on the way amid the construction of 1.2 million rentals in the last three years.
Using data compiled by Yardi Matrix, an August report from Rent Cafe projected that another one million new rentals are on track to be completed through 2025.
“Developers are working tirelessly to complete projects that were approved for construction at the height of the pandemic in order to meet the needs of renters seeking more apartments as hybrid work persists amid this urban churn,” the report stated.
However, rental supply growth could begin to slow once the current round of projects is completed due to tighter bank lending standards and rising labor, land, and material costs, says Doug Ressler, a senior analyst and manager of business intelligence at Yardi Matrix.
“Construction debt starts at 8 percent interest, and most banks only lend 60 percent or less of the total cost of a project. Junior construction debt is even more expensive, with interest rates in the mid-teens,“ Mr. Ressler said. ”This financing structure can make it challenging for companies to initiate new construction projects unless they already have a substantial amount of capital on hand.”
Americans Spending More of Income on Rent
A recent study found that a record number of renters are spending at least one-third of their income on rent.In July, Harvard’s Joint Center for Housing Studies published The State of the Nation’s Housing 2023 report, which found that close to 22 million households spend more than 30 percent of pretax income on rent. Nearly 12 million households are spending more than half of their earnings on housing.
The authors say that the trend of renter households with cost burdens has steadily fallen over the last decade. But this pattern reversed course during the coronavirus pandemic, hitting low-income households the most.
“Housing costs remain well above pre-pandemic levels thanks to the substantial increases over the last few years,” said Daniel McCue, senior research associate at the Joint Center, in the study.
The golden rule among housing experts is for tenants to spend less than 30 percent of their incomes on rent.
While homeownership is the dream of many households, affordability challenges are making it harder to achieve. The average 30-year fixed-rate mortgage is above 7 percent, while the median sales price of homes sold in the second quarter was over $416,000.
