As US consumers face increasing prices for gas, groceries, and other necessities, rents have been rising as well. However, Realtor.com has released some good news regarding rents.
Rental prices in September dropped from August, continuing a two-month decline in price. This is the lowest that rental rates have fallen since June of 2021.
“September provided us consistent evidence of a rental market cooldown,” Jiayi Xu, an economist at Realtor.com was quoted as saying.
After the pandemic hit and many tenants were unable to pay their rent, landlords – who were barred from evicting tenants for nonpayment of rent – fell behind on their own expenses. Once the general economic situation started to improve and demand for rentals increased, landlords raised prices in order to make up for lost ground.
Obviously, that has been a source of concern for renters, especially since most of the rental assistance programs put in place at the beginning of the pandemic have now run out. But now that rent growth is decelerating, tenants may finally be able to catch a break. Furthermore, this market trend could benefit not only renters but homebuyers as well.
A large driver for the increased demand in rentals, particularly over the past year, has been due to spiking home prices in 2020, when mortgage rates dropped to unprecedented lows and housing inventory started drying up.
The high cost of homes and the difficulty of purchasing one — the average home price is now higher than it has ever been, making the typical 20% down payment out of reach for many people — has led many potential buyers to turn to renting instead, which gives landlords more power to control prices.
However, as rent prices drop, some people who were planning to buy a house may postpone that decision and instead continue renting for another year or two. This could present an opportunity for those buyers who are still interested in purchasing a home.
Logic dictates that if rental prices dip, home values might as well. That would be excellent news at a time when it has become so expensive for most people to get a mortgage.
Are rent prices going to keep dropping?
There isn’t a definitive answer to this question. Some people believe that rent prices will continue to fall steadily, while others believe that they have already reached their lowest point and will begin to slowly increase from here on out.
However, most people seem to agree that there are several factors that could influence the direction of rent prices in the future. These include events like an economic recession happening as soon as fiscal 2023. If this occurs, it could discourage potential home buyers and cause more people to rent instead. When demand exceeds supply like this, prices usually go up.
However, that’s not always the case. If a recession were to happen, people would be more likely to save money by living with family or friends instead of renting their own place. Therefore, we could see a drop in rental demand which would result in lower prices.
It will be interesting to see what the median US rent will be 6-months from now. In the meantime, those looking for a rental can take some comfort in the fact that after nearly two years of consistent rental price hikes, rent growth seems to be cooling off, and that the days of landlords jacking up monthly rents to stratospheric levels may soon be over.
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