Rent Growth Cools Slightly, Following For-Sale Market’s Lead (May Rent Report)
Competition for rentals cooled off faster than usual in May giving prospective renters more negotiating power. Early June is when rental activity — listing views, rental applications and inquiries to property managers — typically peaks on the Zillow platform.
Rent growth is slightly weaker than normal this spring and is easing, following both an injection of rental inventory and the cooling for-sale housing market. The typical asking rent has climbed to $2,049, rising 0.4% from last month and up 3.2% compared to a year ago. This is a moderation from last month’s 0.6% increase. In April, rents were 3.4% higher than the same time last year.
Rents tend to follow home prices. The increase in housing inventory both in the for-sale and rental markets means renters have more bargaining power than they have had in a long time for this time of year, whether they’re across the table from a home seller or a property manager.
In recent years, elevated home prices and mortgage rates have pushed many would-be buyers toward renting a starter home. As an alternative to homeownership, many renters enjoy the space and lifestyle of a single-family home without the long-term commitment.
Rent costs for a single-family home are still cheaper than a monthly mortgage payment. However, lower mortgage rates and slower price growth on the for-sale side, combined with steep growth in single-family rents, have cut the purchase premium (before taxes and insurance) in half over the past year.
The typical single-family rental now costs $2,296 per month, a 3.8% increase from a year ago. That’s $92 less per month than the typical mortgage payment of $2,388 (assuming a 10% down payment).
The additional cost of paying a mortgage for the typical home over renting the typical single-family rental is highest in coastal California, led by San Jose — by nearly $6,200 a month — and followed by San Francisco ($3,499), San Diego ($1,956) and Los Angeles ($1,853).
Single-family rent is $413 more expensive than a mortgage in Miami, the largest rental premium among major metros. Chicago ($336), New Orleans ($273) and Pittsburgh ($194) follow.
The multifamily sector is experiencing a similar moderation. Multifamily rents are up 2.6% from last year, with the typical unit now renting for $1,875. This is a downshift from the 2.9% year-over-year rent increase in April. Although fewer apartment completions are expected to firm up rent growth, last year’s multifamily construction boom has given renters more options in the near term.
Even though renting is still more affordable than buying, it’s not necessarily easy. The median household now spends 29.9% of its income on rent, just below the widely recommended 30% threshold. To comfortably afford the typical rental, a household must earn $81,962 annually — a nearly $2,500 increase over the past year.
With affordability still a challenge, renters should act fast if they spot a deal — landlords tend to pull back on rent concessions during peak apartment hunting season. In May, 35% of Zillow listings offered incentives like free rent or reduced deposits — down from 41% in January and February.
Rents
- The typical asking rent is $2,049 in May, up 0.4% month-over-month. The pre-pandemic average month-over-month change for this time of year is 0.7%.
- Since the beginning of the pandemic, rents have increased by 35.8%.
- Rents are now up 3.2% from last year.
- Rents fell, on a monthly basis, in 3 major metro areas. The largest monthly drops are in Tampa (-0.2%), Phoenix (-0.2%) and New Orleans (-0.1%).
- Rents are up from year-ago levels in 47 of the 50 largest metro areas. Annual rent increases are highest in Cleveland (5.9%), Chicago (5.9%), Providence (5.9%), Columbus (5.3%) and Indianapolis (5.3%).
Single-Family Rents
- The typical asking rent for single-family homes is $2,296 in May, up 0.3% month-over-month. Since the beginning of the pandemic, single-family rents have increased by 43.2%.
- Single-family rents are now up 3.8% from last year.
- Single-family rents fell, on a monthly basis, in 3 major metro areas. The largest monthly drops in single-family rents are in Los Angeles (-0.3%), Cleveland (-0.2%) and Tampa (0%).
- Single-family rents are up from year-ago levels in 49 of the 50 largest metro areas. Annual single-family rent increases are highest in Indianapolis (6.5%), Cleveland (6.5%), Providence (6.5%), Kansas City (6%) and Chicago (5.9%).
Multifamily Rents
- The typical asking rent for multifamily homes is $1,875 in May, up 0.4% month-over-month. Since the beginning of the pandemic, multifamily rents have increased by 29.3%.
- Multifamily rents are now up 2.6% from last year.
- Multifamily rents fell, on a monthly basis, in 3 major metro areas. The largest monthly drops in multifamily rents are in Tampa (-0.4%), Phoenix (-0.3%) and New Orleans (-0.2%).
- Multifamily rents are up from year-ago levels in 44 of the 50 largest metro areas. Annual multifamily rent increases are highest in Providence (6.1%), Chicago (5.7%), Cleveland (5.3%), Columbus (5.2%) and Hartford (5%).
Rent Concessions
- 35.1% of rentals on Zillow offered concessions in May. That is a record high for May.
- The share of rental listings offering concessions increased by 0.3ppts month-over-month in May.
- The share of rental listings offering concessions increased by 2.1ppts from last year.
- The share of rentals with concessions is lower, on a monthly basis, in 29 major metro areas. The largest monthly drops in the share of rentals with concessions are in San Jose (-2.9ppts), Charlotte (-2.7ppts), Philadelphia (-2.6ppts), Salt Lake City (-2.5ppts) and Milwaukee (-2.2ppts).
- The share of rentals with concessions is higher, on a monthly basis, in 21 major metro areas. The largest monthly increases in the share of rentals with concessions are in Dallas (2.3ppts), Richmond (2.2ppts), Washington (2ppts), Hartford (1.4ppts) and Orlando (1.4ppts).
- Rent concessions are up from year-ago levels in 33 of the 50 largest metro areas. The annual increase in share of rental listings with concessions is highest in Denver (14.5ppts), Austin (12.7ppts), Raleigh (12.6ppts), Houston (12.1ppts) and Orlando (11ppts).
Rent Affordability
- The median household would spend 29.9% of their income on a new rental in May.
- The pre-pandemic share of median household income spent on rent was 27.8%.
- The most affordable metro areas for rents are Austin (20.1%), Minneapolis (20.2%), Raleigh (20.8%), St. Louis (21.2%), and Salt Lake City (21.2%).
- The least affordable metro areas for rents are New York (41.0%), Miami (40.8%), Los Angeles (36.6%), San Diego (33.4%) and Tampa (33.4%).
- Income needed to afford rent increased by 3.1% year-over-year in May to $81,962. Since pre-pandemic, the income needed to afford rent has increased by 34.7%.