Year-Over-Year Rent Growth Falls as Household Formation Decelerates

After surging in 2021, household formation is slowing, and as a result, year-over-year rent growth is also decelerating, Bill McBride reports in the CalculatedRisk Newsletter, using data from Apartment List’s most recent National Rent Report. The report shows that the national rent index increased by 0.5% over the course of May, and while that’s the fourth straight monthly increase in rent prices, it’s also a far slower growth rate than average, indicating that national rents are flattening at a time of year when they would typically gain steam.

Prices may be rising, but sluggish demand and increasing supply are preventing rents from reaching significant highs.

My suspicion is year-over-year rent increases will slow further over the coming months with slow household formation, and as more supply comes on the market. Although asking rents increased in May according to ApartmentList, “rent growth is flattening out at a time of year when it’s normally picking up steam”. Since rents increased sharply last year in June and July, asking rents could be down YoY in the June or July ApartmentList reports.

My view is it is likely that we will see a year-over-year decline in asking rents sometime in the next couple of months.

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