(April 17, 2024) -- Despite a general slowdown, rent prices continue to climb, especially upon lease renewal, complicating the Federal Reserve's strategy to temper inflation and adjust interest rates.
Too damn high: After a spike in rental costs due to high demand from pandemic lockdowns and soaring home prices, rent growth is finally cooling. However, economists say that the decline needs to be steeper. March's shelter inflation, which includes home and apartment rents, was recorded at 5.7%, substantially higher than the average rate between 2015–2019 of around 3.3%. This figure contributed to the unexpected rise in the March consumer-price index, complicating the Fed's strategy to reduce short-term interest rates.
Renewal vs. Asking Rents While asking rents for vacant apartments have stabilized, renewal rents, which are what tenants pay when renewing leases, continue to rise, with a 4.6% increase noted in January. This stubborn trend is particularly pronounced in cities like Indianapolis and Miami, where renewal rents have increased by over 7%.
Single-family impact: The single-family housing market is experiencing continued growth in both sales and rentals. Property research firm Attom states that median rent for a three-bedroom house exceeds wage increases in over half of the 341 counties studied. Attom's Chief Executive, Rob Barber, explains that this trend is primarily driven by a shortage of available homes for sale, which has elevated rental demand and enhanced landlords' profitability.
Looking ahead: Economists predict a continuing decline in shelter inflation, with expectations that it will drop below 4% by year's end, closer to historical norms. Jay Parsons from Madera Residential points out that the upcoming spring and summer leasing seasons could further reduce landlords' ability to raise rents due to increased vacancies and a peak in new housing supply, likely leading to cooler renewal rates.