“Rent became unaffordable for people in lots of markets,” said Jeff Tucker, a senior economist at Zillow. “We shouldn’t be surprised that fewer people will go out and sign a lease. Throw on other inflationary challenges and that’s going to shrink rental demand.”
Demand is slowing the most in metropolitan areas such as Phoenix, Atlanta and Las Vegas, where rent growth was especially dramatic in recent years, said Jay Parsons, chief economist for RealPage, a rental-data tracker.
Household formation is freezing up, sending apartment demand negative for the first time for any third quarter in at least 30 years, according to RealPage data dating back to 1992. Tenants are leaving rentals at normal rates. The problem for landlords is that a lot fewer are moving in, Parsons said.
On her 25th birthday in July, Rachel McIntyre Smith, a multimedia coordinator in Chattanooga, Tennessee, moved back in with her parents. She loved the freedom of living alone until her landlord jacked up the monthly rent on her $1,100 one-bedroom by another $200, swallowing half her salary with utilities factored in.
“The last few months I was constantly thinking about how I was going to shrink my grocery bill or gas budget,” Smith said. “Now I can sleep better.”
The slump in the for-sale market would seemingly help landlords because sidelined homebuyers would need to live somewhere. But rents have shot up so high that many are instead looking for cheaper alternatives, like living with family, according to Apartment List’s Popov. And frustrated homesellers are listing houses for rent instead, increasing supply.
The slowdown is widespread, with rents falling month-over-month in September in 69 of the top 100 US cities. But it varies widely by geography, and many markets are still quite heated. Rents in the New York, San Diego, Miami and Orlando, Florida, areas, all jumped by at least 12% last month from a year earlier, according to Apartment List data, still gangbusters relative to pre-Covid levels.
It’s normal for rents to dip in the months leading into the winter holidays. But if demand doesn’t return by next spring, problems for landlords will worsen, Popov said. There’s a near-record amount of newly-built apartments under construction and heading for completion, adding to the rental inventory.
“The question is where is the economy in March, April, May, when people are normally out looking for apartments?” Popov said.
Cynthia Woodward says she’s juggling more vacant homes than any time in her 11 years as a Las Vegas property manager. Normally, out of the 130 homes she manages, a few will be empty. But now she’s got a dozen, including one that was broken into in the dark of night, the thieves leaving with a new washer, dryer and refrigerator.
“Lately activity is ice cold,” Woodward said. “Where are the people?”
--With assistance from Vince Golle.
This article was provided by Bloomberg News.