According to a recent study, renting has become a more affordable option than buying in almost every major market, shedding light on a shifting trend that challenges traditional notions of homeownership.
For the fifth consecutive month, rent prices have continued to drop, indicating a shift in the housing market that favors renters. The pandemic led to a surge in home prices and a mortgage rate shock, making housing unaffordable for many. However, the rental market is experiencing a softening trend, resulting in lower rents.
According to Realtor.com’s latest rental report, median asking rents in the 50 largest metropolitan areas decreased to $1,747 in September. This represents a $29 drop from the peak in July of the previous year and a $5 decrease from August 2023. Despite the decline, rent prices are still significantly higher than pre-pandemic levels, although they have fallen on an annual basis.
The improvement in rental affordability can be attributed to an increase in multifamily construction rates, particularly for studios, one-bedroom apartments, and two-bedroom apartments. These categories have seen an overall year-over-year rent decline of 0.7%.
Danielle Hale, the chief economist at Realtor.com, stated that as rent prices ease and home prices and mortgage rates continue to rise, it has become more economical to rent than to buy in most major markets. This assertion is supported by Realtor.com’s August rental report, which found that renting a starter home is more affordable than buying in 47 out of the top 50 metros. The monthly cost of buying a starter home in August 2023 was 64.3% higher than the cost of renting, on average.
The national median rent for a studio in September was $1,447, down 0.5% year-over-year. The median rent for a one-bedroom apartment was $1,630, down 0.3% over the same period, and the median rent for a two-bedroom apartment was $1,934, down 0.7%. The softer rental market has led landlords to offer incentives such as one-time discounts or a few months of free rent.
Despite the recent decline, rent prices for all unit sizes and types remain considerably higher than in July 2019. However, the influx of new apartments onto the market has contributed to dampened rent growth, particularly for lower-priced units. Newly constructed apartments are being absorbed at a faster rate compared to pre-pandemic years, with units priced below $1,250 having the highest absorption rates.
While rent prices are down nationally, the median rent growth rate still stands at 2.3%. The Midwest has experienced the fastest year-over-year rent growth, with four out of the top 10 markets in this region. Some Southern metropolitan areas, such as Louisville, have also seen significant rent growth, while others, like Austin and Dallas, have experienced substantial rent declines. In the Western region, median rents have fallen by 3.1% compared to a year ago, with San Francisco and Los Angeles experiencing notable declines.
With the record number of new units entering the market and driving down rent prices, individuals who may have given up on homeownership now have more affordable rental options. This includes downsizing to a smaller unit or considering a roommate to save for a future home. Overall, the rental market remains robust, particularly for affordable units.