Rents decreased for the 24th consecutive month in July
In the current market conditions, renters are reaping the benefits of improved affordability and slower seasonal rent growth. For the past 24 consecutive months, as of July 2024, rents have declined, marking two full years of overall declines in the U.S. rental market.
The median rent for 1-bedroom properties in July 2024 stood at $1,590, a decrease of 2.8% year-over-year. Similarly, the median asking rent for 0-2 bedroom properties was $47 less than the peak seen in August 2022. The national average rent for these properties in the U.S.'s 50 largest metro areas dropped to $1,712 in July 2024, a decrease of $43 from July 2022.
However, the picture may change in the near future. The pipeline for new apartments is shrinking under tougher economic and trade conditions. The number of completed multifamily units in June 2024 decreased by 38.1% year-over-year, from a seasonally adjusted annual rate of 656,000 in June 2024 to just 406,000.
Tariffs on steel, lumber, and aluminum, enacted in June, are expected to exacerbate the slowdown in apartment construction. These tariffs have significantly increased construction costs, raising the base cost for developers and reducing profit margins. For instance, steel tariffs of 50% have severely impacted large projects' feasibility, leading to delays or cancellations.
The slowdown in apartment construction could lead to a potential future rental shortage. Experts warn that future supply constraints could tilt the market back in favor of landlords. If construction pullbacks continue, the current renter-friendly market could give way to a tighter, more competitive landscape.
The Midwest saw completions of multifamily units fall by a staggering 55.7% in June 2024. Other U.S. regions also saw double-digit declines in multifamily unit completions.
Danielle Hale, chief economist at Realtor.com, stated that the rent declines have given renters more leverage and financial breathing room than they've had in some time. However, she also warns that potential future rental shortages due to the falling multifamily construction could reverse these trends.
Experts advise that renters should take advantage of the current market conditions while they last. Meanwhile, developers are pulling back in key markets, which could further tighten the supply of rental properties in the future.
Investors in the real-estate industry may find opportunities in the U.S. rental market, as the slowdown in apartment construction could lead to a potential future rental shortage. Meanwhile, deteriorating financial conditions, such as increased construction costs due to tariffs on steel, lumber, and aluminum, are posing challenges for finance figures involved in investing in real-estate development.
