Third-quarter demand for U.S. apartments sank to a 13-year low after rental rates rose 25 percent over the past two years, according to rental website Apartment List.
More people are rooming with others, moving back in with parents, or remaining in parents’ homes longer, a UBS survey found.
Eighteen percent of adults lived with other people rent-free some time from March through September, the survey discovered, compared to 11 percent a year earlier.
It was the highest proportion since UBS began the survey in 2015.
The leasing pace in the quarter was the lowest in 30 years, according to RealPage, which develops software for landlords. July, August, and September are usually the year’s prime leasing season, the company noted.
Meanwhile, apartment vacancies edged up to 5.5 percent during the quarter from 5.1 percent in the previous three months, data service CoStar said.
The data shows that “rent can’t continue at the same level it has sustained over the last couple of years,” UBS analyst Michael Goldsmith told The Wall Street Journal. “We’ve reached the point where renters are willing to pull out of the market.”
Record housing prices shut growing numbers of modest- and middle-income households out of home ownership, leaving them to scramble for increasingly scarce apartments in desirable locales.
At the same time, COVID vaccines freed young people to leave their parents and move into apartments in city centers that had been vacated by COVID refugees, plunging rents to lows not seen in recent memory.
Both factors sent rental rates rising to record levels.
Now rents are falling for the first time in two years as renters prove unwilling or unable to tolerate continuing increases.
However, the drop is slight, with rents still averaging 6 percent above those last year, the WSJ said, with rents not yet declining in hotspot markets, such as Charleston, S.C., where average rents are still 14 percent above last year’s level.
TRENDPOST: The days of price-gouging by apartment landlords is coming to an end, although the process will be slow in markets such as Austin and Charleston that saw a major influx of COVID migrants. Some investors have built luxury apartments to cash in on sky-high rents, as we showed in “Apartment Building Boom Targets Affluent Tenants” (21 Jan 2020). As inflation and rising interest rates thin the ranks of affluent renters, some of these projects will find themselves forced to cut rents to draw tenants, leaving landlords with skinnier margins and, perhaps, underwater with their lenders.