Redfin Report: Renters Catch a Break as Costs Drop for Third Straight Month in December

Rhea-AI Summary

Redfin (NASDAQ: RDFN) reports a 0.8% year-over-year decrease in median U.S. asking rent in December to $1,964, marking the third consecutive decline. The rental market is affected by rising supply, leading to a 6.6% rental vacancy rate, the highest in nearly two years. Rents have fallen in the West and South but risen in the Midwest and Northeast, indicating regional disparities in the rental market.

Market Research Analyst

Current trends in the rental market are indicative of a shift in the balance between supply and demand. The increase in supply, primarily due to a construction boom, has led to a rise in rental vacancies. This surplus in available properties is exerting downward pressure on rents, as landlords are incentivized to reduce prices to attract tenants. The reported 0.8% year-over-year decline in median U.S. asking rent is a reflection of this dynamic.

Furthermore, regional variations are notable, with the Midwest and Northeast experiencing rent increases due to lower construction activity relative to the South and West. This suggests a regional disparity in housing market pressures that could influence migration patterns and consumer spending. As rental prices are a significant component of consumer expenditure, this shift could have broader economic implications, potentially affecting disposable income levels and retail spending.

Financial Analyst

The rental market's performance is a critical factor for real estate investment trusts (REITs), landlords and investors in residential properties. The decline in rents, coupled with increasing vacancies, may signal a potential decrease in revenue streams for these stakeholders. Investors may need to recalibrate their expectations for yield from rental income, particularly in markets with significant new construction. This could affect the valuation of real estate portfolios and the performance of related stocks.

Additionally, the data may influence interest rates, as central banks consider the housing market's condition when setting monetary policy. If the trend of declining rents continues, it could be indicative of a cooling economy, which might prompt a more dovish stance from policymakers.

Economist

The cooling of rent prices can be seen as a lagging indicator of economic activity. High supply and economic uncertainty, as well as slowing household formation, are factors contributing to the softening rental market. This could suggest a broader economic slowdown, as household formation is often tied to economic confidence and job market health. The potential shift from renting to homeownership, as hypothesized due to falling mortgage rates, may further dampen rental demand, exacerbating the issue for landlords.

The rental market's condition is also a proxy for affordability challenges. Despite the recent declines, rents remain only slightly below their peak, maintaining financial pressure on households. This could have long-term implications for consumer spending and saving rates, impacting overall economic growth.

Rising supply has led to rising vacancies, motivating landlords to lower asking rents, which fell 1% from a year earlier.

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) —The median U.S. asking rent fell 0.8% year over year in December to $1,964, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That’s the third consecutive decline, following a 2.1% annual drop in November—which was the largest since 2020—and a 0.3% dip in October.

December rents were little changed from the prior month (-0.2%).

The rental market has lost steam largely due to a jump in supply fueled by a building boom in recent years. That has left many landlords struggling to fill vacancies, motivating some of them to drop asking rents. Some landlords are also offering one-time concessions like a free month’s rent or reduced parking costs to attract renters. This means the prices renters are paying in total are likely coming down faster than they appear to be in the data.

Other reasons rents have cooled include economic uncertainty, slowing household formation, and affordability challenges, as rents are still only 4.4% below their record high. Additionally, there are new signs that the economy is slowing; Americans are starting to tighten their belts, which could be contributing to the decline in rents.

“High supply—more so than low demand—is driving rent declines. But if mortgage rates continue to drop at a fast clip in 2024, slowing rental demand could become a major driver of rent declines,” said Redfin Economics Research Lead Chen Zhao. “That’s because more Americans would ditch the rental market to become homeowners, leaving landlords with even more vacancies.”

There are more newly built and under-construction apartments in the U.S. than there were a year ago; the number of completed apartments is near the highest level in more than 30 years, and the number under construction is just shy of its record high.

Because renters have an increasing number of buildings to choose from, vacancies have climbed. The rental vacancy rate rose to 6.6% in the third quarter—the most recent period for which data is available—the highest level since the first quarter of 2021.

Rents Rise in the Midwest and Northeast, Fall in the West and South

The median asking rent in the Midwest rose 3.7% year over year to $1,434. Rents also rose in the Northeast, climbing 1.7% to $2,439. Meanwhile, rents fell 1% year over year to $1,632 in the South, and declined 0.6% to $2,346 in the West.

Rents are likely holding up best in the Midwest and Northeast because those regions haven’t been building as much as the South and West, meaning some landlords have less incentive to drop prices because they’re not dealing with as many vacancies.

“With rents falling and vacancies rising, now is a good time to shop around or try to renegotiate your rent if your lease is up—especially if you’re a renter in the South or West,” Zhao said.

To view the full report, including charts and methodology, please visit:
https://www.redfin.com/news/redfin-rental-report-december-2023

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We also run the country's #1 real estate brokerage site. Our home-buying customers see homes first with same day tours, and our lending and title services help them close quickly. Customers selling a home in certain markets can have our renovations crew fix up their home to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Customers who buy and sell with Redfin pay a 1% listing fee, subject to minimums, less than half of what brokerages commonly charge. Since launching in 2006, we've saved customers more than $1.5 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240108038362/en/

Redfin Journalist Services:

Kenneth Applewhaite, 206-414-8880

press@redfin.com

Source: Redfin

FAQ

What is the NASDAQ ticker symbol for Redfin?

The NASDAQ ticker symbol for Redfin is RDFN.

What was the year-over-year decrease in median U.S. asking rent in December according to Redfin?

Redfin reports a 0.8% year-over-year decrease in median U.S. asking rent in December to $1,964.

What is the current rental vacancy rate in the U.S. according to the Redfin report?

The rental vacancy rate in the U.S. is 6.6%, the highest level since the first quarter of 2021.

In which regions did rents fall according to the Redfin report?

Rents fell in the South and West according to the Redfin report.

In which regions did rents rise according to the Redfin report?

Rents rose in the Midwest and Northeast according to the Redfin report.