March Marks 14th Consecutive Month of Slowing Rent Growth

The Realtor.com March Rental Report found a split in rental price trends, with some of the country's most expensive markets seeing year-over-year price declines, while more affordable markets continued to grow at an even faster pace, as consumers sought affordability after the past several years of quick growth and high rental prices.

"Mirroring trends that we've seen in the for-sale market, affordability is shaping housing demand, with lower-cost areas continuing to see stronger rent growth, home price increases, and competitive real estate markets. Markets in the Midwest and Northeast are benefiting from this trend while cities in the West are adjusting in the opposite direction," said Realtor.com Chief Economist Danielle Hale. "The good news for renters is that overall rent prices and price growth have both cooled from their highs in early 2022, offering some relief for cost-burdened consumers who are facing higher prices across the board."

Key Findings:

• March 2023 marks the fourteenth month of slowing rent growth, and eighth month in a row with a single-digit rate of increase for 0-2 bedroom properties (2.5% Y/Y).
• The median asking rent in the 50 largest metros increased to $1,732, up by $15 from last month and down $32 from last year’s peak.
• Rent has been growing faster in smaller units. Rent by size: Studio: $1,451, up 4.7% ($65) year-over-year; 1-bed: $1,637, up 3.5% ($55) year-over-year; 2-bed: $1,901, up 2.0% ($37) year-over-year.
• Rents in large Western coastal metros grew slower than rents in Northeastern metros. San Francisco (-0.8%) and Los Angeles (-0.8%) saw their first year-over-year declines in nearly 2 years.
• Rents in the Midwest continue to increase faster (5.9% Y/Y), led by Indianapolis, IN (10.3%), Cincinnati, OH (9.6%), and Milwaukee, WI (7.8%).
• Rent growth rates in Sun Belt markets continue to slow (0.2% Y/Y), but the median asking rent was still $410 (27.2%) higher than four years ago (pre-pandemic).

California rent prices on the decline as Midwest picks up speed

In March, 14 markets saw year-over-year price declines, including San Francisco (-0.8%) and Los Angeles (-0.8%), which saw their first year-over-year declines in 2 years. Riverside-San Bernardino, Calif. (-5.3%) and Sacramento, Calif. (-2.1%) also saw declines in March. These declines could be connected by tech layoffs and a weakening job market in the state.

On the flip side, Midwestern markets including Indianapolis, Ind. (10.3%), Cincinnati, Ohio (9.6%), and Milwaukee, Wisc. (7.8%) continued to rise quickly year-over-year. Rent growth rates in Sun Belt markets, which grew very quickly during the pandemic, continued to slow (0.2%), but the median asking rent was still $408 (27.2%) higher than four years ago (pre-pandemic).

Rents up significantly since the pandemic began

Nationally, the U.S. rental market experienced single-digit growth for the eighth month in a row after 14 months of slowing from its high of 16.4% growth in January 2022. The median rent in the 50 largest metros increased to $1,732, up by $15 from last month and down $32 from last year's peak. However, this is still $354 (25.7%) higher than the same time in 2019 before the pandemic.

Year-over-year rent trends

Despite a slowdown in annual rent growth, concerns about affordability are still on the rise. A recent study from the Federal Reserve Bank of Kansas City pointed out that a tight labor market could keep rent prices high. While the job market showed signs of cooling in March, higher-than-usual wage growth (4.2%) and a record-low unemployment rate (3.5%) could continue to boost strong rental demand. Meanwhile, nearly 90% of respondents of the most recent Fannie Mae’s National Housing Survey believed home rental prices will not improve in the next 12 months, reflecting a more gloomy outlook compared to the end of 2022. ¹  In addition, the New York Federal Reserve’s 2023 Survey of Consumer Expectations (SCE) Housing Survey shows that while expectations of rent increases have moderated, they remain high compared to historical standards and in comparison to expectations of home price growth.

Rents in Western coastal metros cooling faster than their Northeast peers

The recent wave of job cuts in the tech industry has likely impacted the rental demand in  large metros on the west coast. In March 2023, the median rent in the West was 0.7% lower than a year ago. Specifically, rents in San Francisco, CA (-0.8%) and Los Angeles, CA (-0.8%) saw their first year-over-year declines in nearly 2 years. While Seattle, WA (0.8%) and San Diego, CA (2.0%) still experienced positive rent growth, both rates were below the national average (2.5%). Although San Jose, CA (4.5%) appears to be an outlier in March, its growth rate was only one fourth of what it was a year ago, and is more likely to continue to trend downwards in the coming months. While the median rent in the West was lower than last March (-0.7%), the median asking price of 0-2 bedroom for–sale property continued to grow, though at a slower rate (1.0%).

In contrast, rents in populous northeastern metros such as New York, NY (10.2%), Boston, MA (5.7%), and Washington D.C (4.4%) continued to experience faster growth.  In addition, the rent growth in the Northeast has outpaced the growth rate of home asking prices. In March 2023, the median asking rent for a 0-2 bedroom property in the Northeast was 7.2% higher than a year ago, but the asking price for a typical home was only 3.4% higher than the same time last year.

Rents in Sun Belt markets continue to slow down faster 

Rental markets in the Sun Belt metros continued to cool faster than other parts of the U.S. In March 2023, the year-over-year growth rate for 0-2 bedroom rental properties across Sun Belt metros was 0.2% (vs. 2.5% nationwide). It is also slower than the price growth rate of the same type of for-sale homes in this region (4.6% YOY).

The top 5 metros experiencing the most significant year-over-year rent declines are all clustered in the Sun Belt regions: Riverside, CA (-5.3%), Phoenix, AZ (-4.7%), Las Vegas, NV (-4.3%), Tampa, FL (-2.7%) and Austin, TX (-2.5%).  While Sun Belt markets have cooled faster, the median asking rent in the region was still $408 (27.2%) higher than four years ago (pre-pandemic), higher than national rent growth for the same four year period (25.7%).

Rents in Midwest markets continue to see faster growth

On the flip side, rents in Midwest metros continued to see faster rent growth. In March 2023, the median rent growth rate was 5.9%, outpacing the price growth of 0-2 bedroom homes (4.2%). As the Midwest markets tend to have greater affordability, the stronger growth in these markets likely results from this benefit even as it may reduce existing affordability. Among the top 10 metros experiencing the fastest year-over-year growth, six of them are located in the Midwest: Indianapolis, IN (10.3%), Cincinnati, OH (9.6%), Milwaukee, WI (7.8%), St. Louis, MO (7.4%), Chicago, IL (6.8%) and Detroit, MI (6.6%). The other four metros are  New York, NY (10.2%),  Pittsburgh, PA (8.3%), Louisville/Jefferson, KY-IN (7.4%) and Oklahoma City, OK (9.2%). Interestingly, Oklahoma City was found to be both the least expensive and the most affordable metro for renters based on our previous reports. However, the stronger growth in annual rents in this area may eat into that rental affordability.

Regionally, rents are outpacing home price growth in the Northeast and Midwest, a sign of the relative strength of the economy in these regions. Meanwhile, rents are underperforming home price growth in the Sunbelt and West, which could signal more challenges ahead.

To read the full report, including more data, charts and methodology, click here.