According to a report by Redfin, landlords are offering incentives to attract renters in the current housing market, even though the median asking rent is at a near-record high. Despite the median U.S. asking rent reaching $2,052 last month, just $2 below the record set a year earlier, landlords are finding ways to entice renters.
In some parts of the country, landlords are offering one-time discounts or a few months of rent-free living to attract tenants. Although asking rents remain high on paper, vacancies are on the rise, leading some landlords to provide these incentives. This means that while rents are effectively decreasing in some areas, the declines may not be reflected in asking-rent data.
The rental vacancy rate in the U.S. is currently at 6.3%, an increase from the previous year’s rate of 5.6%. Additionally, the number of finished residential projects in buildings with five or more units rose nearly 29% year-over-year in the second quarter. This increase in supply has given landlords more vacancies to fill but less room to raise prices.
To maintain their returns without deterring prospective renters, building owners are sometimes raising rents for existing tenants while keeping them lower for new tenants. This flexibility allows landlords to attract new tenants without lowering their asking rents.
While demand for higher-end properties is declining in some markets due to increased supply, more affordable units are in demand. Consumers are less willing or unable to afford higher-end units at this time. However, despite rents reaching near all-time highs, they are no longer experiencing substantial year-over-year increases like in previous years. Factors such as slowing household formation, economic uncertainty, affordability challenges, and increased rental supply have contributed to this cooling in rent growth.
The rental market varies across different regions of the country. In the West, the median asking rent dropped 1.1% year-over-year to $2,469 in August. The South experienced a 0.3% decrease to $1,673, while the Midwest saw a 4.6% increase to $1,434 and the Northeast had a 1.2% increase to $2,509.
The rental market in the West and South has cooled due to outsized rent increases during the pandemic. Cities such as Phoenix, Miami, and Dallas experienced a rental frenzy, leading to high rents. However, as the rental market stabilized, rents in these regions started to fall. The West has also been impacted by layoffs in the tech sector, contributing to its soft rental market.
Sources:
– Redfin
– St. Louis Fed (Census Bureau data)
– Rent.com