Rent price growth is finally slowing, a positive sign for the housing market.
The median asking rent rose 2.4% YOY in January, the smallest increase since May 2012 and the lowest level in almost a year, Redfin reported.
Month-over-month, rents decreased by 1.9% and were down 5.4% from August’s peak.
Eleven U.S. metros saw rents dip, with both Phoenix and Oklahoma City seeing declines of more than 6%.
Though prices are retreating, rents are still 22.5% higher than in January 2020.
Redfin analysts say rents are cooling because of increasing supply and lack of demand. Inflation, economic uncertainty, and low household formation have stalled demand.
“We’re watching closely to see whether rents start falling year-over-year. That would be a welcome relief for renters because it hasn’t happened since the onset of the pandemic. If rents do start falling on a year-over-year basis, it will mean that renters have more room to negotiate,” said Redfin Chief Economist Daryl Fairweather.
It’s also good for the mortgage market. High mortgage rates have a clear impact on rents. If they can’t afford to buy a house, renters stay in their units longer, causing price increases and a lack of available units.
But there’s a catch-22: renters struggling to afford their monthly payments are more likely to be unable to save for a down payment. If families are having a hard time balancing rent, food, and necessary expenses, saving for a down payment is going to be put on the backburner.
Nick Graetz, postdoctoral research associate at the Eviction Lab at Princeton University, summed it up: “The rent eats first.”
First-time homebuyers are becoming scarcer and older, according to data from the National Association of Realtors.
“The share of first-time homebuyers dropped to the lowest level we’ve ever recorded,” says Jessica Lautz, deputy chief economist and vice president of research at NAR. “What’s really striking about the first-time homebuyers this year is that the median age moved to 36 years old. We’re now seeing a first-time homebuyer who’s now closer to 40 than they are to 30.”
Cooling rents may bring a new wave of potential homebuyers to the market after they have had sufficient time to save.
It could be a boon in particular to Gen Zers, who overwhelmingly want to own homes but worry they won’t be able to afford them. The number of Zoomers who believe homeownership is within reach for them has been dropping since at least 2021.
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