Rents climb modestly in March, continuing a soft landing from 2022’s record-breaking pace of growth
Asking rents climbed by $9, or 0.5%, from February to March, according to the latest reading of the Zillow Observed Rent Index (ZORI). That builds on February’s 0.3% increase, when monthly rent growth turned positive after a 4-month slide. The 0.5% increase is still somewhat smaller than the typical March increase of 0.6%, averaged over data from 2016 to 2019, suggesting that today’s growth is still driven mainly by seasonal factors, and overall conditions are still rather cool for this time of year. Typical asking rents at the national level now stand at $1,996, which is 6.0% higher than one year ago, and only 0.1% below the peak of $1,997 observed in September 2022. That annual growth rate is now down about 11 percentage points from the peak growth rate of 17.0%, the record-high pace reached in February 2022.
Monthly changes: Few losers, and surprising resurgence in the Northeast
Rents rose the most on a monthly basis in Boston (1.1%), Hartford (1.0%), New York (0.9%), Washington, DC (0.9%) and Cincinnati (0.9%). Broadly this suggests a strong spring leasing season kicking off in the Northeast. It also may reflect the continued process of more workers returning to offices, boosting rental demand in those cities.
The slowest monthly growth in rent were observed this March in Salt Lake City (-0.4%), Detroit (-0.1%), Portland (0.0%), Richmond (0.0%) and Pittsburgh (0.1%). Only two of the 50 largest metropolitan areas had monthly declines, suggesting that the return to rent growth has been broad-based.
Western markets: much cooler than the Northeast and Midwest
Annual rent growth was highest in Cincinnati (9.2%), Boston (8.7%), Louisville (8.3%), Indianapolis (8.2%), and Providence (7.8%). Just outside the top 5 were Kansas City (7.8%) and Hartford (7.8%). The story here remains that, ever since the national market began its cooldown just over a year ago, the most resilient rental markets have been affordable Midwestern and Northeastern cities, plus Boston.
The weakest year-over-year rent growth can mostly be found out West. On a year-over-year basis, rents are down 0.9% in Las Vegas, and up less than 3% in: Phoenix (0.9%), New Orleans (1.9%), San Francisco (2.7%), Salt Lake City (2.9%) and Austin (2.9%). These represent major slowdowns from the very high annual growth rates one year ago in Las Vegas (22.9%), Phoenix (23.6%), Salt Lake City (19.7%) and Austin (21.5%), and another consecutive year of low rental growth in San Francisco (11.1%, last year, was only 41st of the top 50 metropolitan areas).
The most expensive major market is San Jose, where typical monthly rent is $3,230, followed by New York ($3,156), San Francisco ($3,098), San Diego ($2,977), and Boston ($2,974).
A soft landing for rent growth may be underway
Last month we flagged that monthly rent growth had climbed much closer to its pre-pandemic average for February, but still tracked below it; this month showed no further progress in climbing back up to pre-pandemic averages. February’s growth was only 13 basis points below the 0.43% averaged at this time of year in the five years of data from 2016 to 2020, while March’s 0.46% growth was 19 basis points below the 0.65% monthly growth averaged in March from 2016 to 2019. At the risk of reading too much into one month’s data, this suggests that the market is not imminently at risk of reheating into another phase of above-average rent growth.
Meanwhile the continued deceleration of annual asking rent growth in March further heightens the contrast with official inflation measures of rent growth, like the Consumer Price Index’s Rent of Primary Residence component, which grew 8.8% in February (the most recent month available at this time). Previous research suggests a 12-month lag between annual ZORI growth and annual CPI Rent growth, giving cause for hope that the year-over-year growth in the latter could begin to decelerate sometime soon. The compounded annual growth rate of February’s monthly change in CPI Rent, 8.9%, has come down measurably from its pandemic-era peak of 11.1% in September of 2022. June looks like the most likely candidate when year-over-year CPI Rent growth might decelerate, since monthly growth in that measure accelerated sharply last June, which will make the baseline comparison easier to fall below this summer.