For the fifth straight month, rent prices have dropped, a new report found. It turns out that our unaffordable housing market, marked by a substantial rise in home prices during the pandemic and a mortgage rate shock that’s still playing out, is tipping in favor of renters as the rental market continues to soften.
In September, median asking rents in the 50 largest metropolitans dropped to $1,747, according to Realtor.com’s latest rental report released on Friday. That's down $29 from the peak in July of last year or down $5 from Aug. 2023. Still, rent prices are significantly higher than pre-pandemic levels, even if they’ve fallen on an annual basis. Nonetheless, rental affordability continues to improve, and an uptick in multifamily construction rates is largely behind falling rents, particularly for studios, one-bedroom apartments, and two-bedroom apartments—all of which have seen an overall year-over-year rent decline of 0.7%.
“As rents ease and both home prices and mortgage rates continue to climb, it’s become more economical to rent than to buy in nearly all major markets,” Danielle Hale, chief economist at Realtor.com, said in a statement.
Hale is referring to data published in Realtor.com’s August rental report, which showed the cost of buying a starter home is significantly more expensive month to month than the cost of renting a similar sized home. The report found that renting was more affordable than buying in 47 of the top 50 metros. In those markets, the monthly cost of buying a starter home, which Realtor.com classified as zero to two bedrooms, in August 2023 was $2,959, or 64.3% higher than the cost of renting, on average. The three exceptions were Memphis, Pittsburgh, and Birmingham, where buying a home is cheaper by an average of $29 per month.
In determining the monthly cost of buying a starter home and how it compares to renting, Realtor.com found the median price of home listings with two or less bedrooms and calculated the monthly payment required after putting 7% down, using whatever the 30-year fixed mortgage rate was at the time. Realtor.com included HOA fees, taxes, and homeowner’s insurance averaged at metro levels as part of the costs. Then, it compared the resulting buy-cost to the median rent in each metro and focused on the difference between monthly expenses for each. This rent versus buy analysis is done every six months or so, and dating back to December of last year, it’s shown that it’s better to rent in most of the top 50 metropolitan areas.
As of last month, the national median rent for a studio 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%, according to the report. As Fortune’s previously reported, a softer rental market has pushed landlords to offer incentives, whether that’s a one-time discount or a few months free, according to Redfin.
But, again, despite being down over the last year as the rental market softens nationwide, rents for each unit size and type are up considerably from July 2019. Additionally, larger units are still seeing rent growth year-over-year.
Still, with an influx of new apartments coming onto the market and dampening rent growth, demand among renters is strong, particularly for lower-priced units. Within the first three months of completion, newly constructed apartments are seeing faster absorption rates, compared to pre-pandemic years. In September, the annual completion rate of multifamily buildings with five units or more stood at 445,000 units, which increased 10.1% month-over-month and 15.0% year-over-year. In the first quarter of this year, 82,310 apartments with five units or more were completed, and within three months 61% were rented—and units with asking rents below $1,250 had the highest absorption rates.
“Although this additional rental inventory is undoubtedly a positive development for renters, the rapid rate at which these units are being absorbed suggests that demand in the rental market remains robust,” the report said, particularly for affordable units.
Although rent prices are down, nationally, the median rent growth rate was 2.3%. In the Midwest, where rent is generally more affordable, four of the 10 markets that experienced the fastest year-over-year rent growth. Meanwhile, some Southern metropolitan areas had faster year-over-year rent growth, like Louisville (which experienced an increase of 4.6%) while others like Austin and Dallas experienced the most significant rent declines of 7.3% and 6.2%, respectively. Additionally, median rents across the Western region fell 3.1% compared to a year ago. For instance, San Francisco’s median rent fell 4.8%, while Los Angeles’ fell 3.4% year-over-year.
“With a record number of new units coming onto the market driving rent prices down, those who may have given up hope of homeownership may be able to leverage more affordable rental options—including downsizing to a smaller unit or considering a roommate for the near term—to help build savings for a future home,” Jiayi Xu, economist at Realtor.com, said in a statement.
