• The typical U.S. rent is $2,011. That is 3.2% higher than a year ago and up slightly from September’s annual change — the first time since the pandemic peak that annual rent growth has accelerated. 
• Rents fell slightly from September. This type of cooldown is common for this time of year
• Smaller, more affordable markets in the Northeast and Midwest saw annual rent growth remain the strongest in October. Typical asking rent has fallen from a year ago in Austin, San Francisco and Portland.

The nearly two-year-long slowdown in rent growth may finally have come to an end in October. After slowing in every month since a record-high 16.1% in February 2022, the annual change in typical U.S. asking rent increased in October, according to the Zillow Observed Rent Index (ZORI). ZORI increased in October by 3.23% from a year ago, slightly faster than September’s 3.19% annual change, and now sits at $2,011. 

It remains to be seen whether this is the beginning of a recovery in annual rent growth back toward longer-term averages, or more of a stabilization. Indeed, despite the uptick in annual appreciation, typical U.S. asking rent fell slightly in October from September, ticking down by less than one-tenth of a percent, in line with usual monthly changes in pre-pandemic Octobers.

The consistent cooling of annual rent growth had largely been driven by an onslaught of new multifamily construction – the overwhelming majority of which are built for rent – coming on the market and accepting new tenants. Indeed, this dynamic remains in place and should continue well into 2024. While homebuilder confidence has waned and fewer new multifamily housing projects have recently begun construction compared to prior months, a record-high number of multifamily homes remain under construction and are likely to become available homes for rent once building is complete. This added supply is likely to nudge rental vacancy rates upward and help dampen asking rent prices for multifamily units in the months to come.

That said, October’s uptick in annual rent growth may be an indication that the affordability benefits of renting – relative to buying – a home are stoking demand for rental housing. In much of the country, monthly rent payments are cheaper than the mortgage payment associated with the purchase of a home thanks, in large part, to the substantial increase in mortgage rates over the past year. For several years prior to the pandemic, the opposite was true. The affordability benefits that renting now provides has made it an attractive – if not necessary – option for many households seeking their next home. With a return to pre-pandemic home purchase affordability remaining unlikely, this rental market advantage should persist in the months ahead, buoying demand for rentals as a result.

Rent growth is strongest in the Northeast and Midwest

Annual rent appreciation remains strongest in smaller markets in the Northeast and Midwest, while markets out West saw the weakest year-over-year growth, and even declines in a few markets: 

• Rents have risen the most over the past year in Providence (+7.5), Hartford (+7.1), Buffalo (+6.3%), Cincinnati (+6.2%) and Chicago (+5.4%).
• Rents fell over the past year in Austin (-2.8%), San Francisco (-0.2%) and Portland (-0.1%). 

CPI rent inflation likely to continue to decelerate

Annual rent inflation in the Consumer Price Index (CPI) continued to decelerate in September – the latest reading available at time of writing – and that should continue to be the case for at least the near-term. It takes time for changes in asking rents to be ingested by monthly inflation readings, so the housing-specific components of CPI and the Fed’s preferred gauge (the Personal Consumption Expenditure price index) should continue to decline as they account for ZORI’s annual decelerations seen earlier this year.