States in the West are seeing more dramatic declines in rent prices compared to the rest of the U.S., according to a new analysis by Rent.com.
Rent costs in the U.S. slowed this year, driven in part by rising rental supply amid a national surge in multi-family unit construction. It could mark a turning point after years of runaway price increases, both in the rental and housing markets amid the pandemic housing frenzy.
But just as the housing market correction — brought on by the rapid rise in mortgage interest rates last year — varied depending on region, it’s a similar story for what’s happening to rents. Western states saw among the most dramatic housing price increases from 2020 to mid-2022, and since then they’ve also seen some of the largest decreases.
Using data from its online inventory, the rental management site Rent. analyzed rental property prices in September, the last full month of data, to identify median rent prices at the national, state and metro levels. The site combined all inventory and bedroom types into one median that captures all available rental units at the time.
The Rent. analysis published this week showed national costs grew by a slim 0.4% year over year last month, the sixth month in a row that price changes came in below 1%, while both May and August registered negative yearly rent growth. Month over month, prices declined by over 2%.
Across the U.S. most states are seeing rents rise year over year. In September, nearly 63% of markets registered yearly price increases compared to over 37% of markets that saw price declines over the same period. On a month-to-month basis, though, that split flipped. Less than a third of state-level markets saw monthly price increases while over 67% saw rent prices drop from August to September.
States in the West saw some of the largest rent decreases, with Montana leading out with a nearly 15.5% drop on a yearly basis. One state in the South, Oklahoma, ranked second with over 10% declines, while Pacific Northwest states of Washington and Oregon saw the third- and fourth-highest declines, respectively.
Idaho, Utah and Nevada ranked fifth, sixth and seventh, respectively, with declines between 8% and 5%. Idaho also saw among the biggest monthly declines, with prices dropping by nearly 3% from August.
These states saw the largest yearly decrease in asking rents in September, according to the Rent. analysis:
- Montana: -15.5% year over year to a median rent of $1,716.
- Oklahoma: -10.6% year over year to a median rent of $960.
- Oregon: -10% year over year to a median rent of $1,702.
- Washington: -8% year over year to a median rent of $2,312.
- Idaho: -7.8% year over year to a median rent of $1,570.
- Nevada: -5.72% year over year to a median rent of $1,566.
- Utah: -5.71% year over year to a median rent of $1,602.
- Florida: -5.5% year over year to a median rent of $2,114.
- Pennsylvania: -4.5% year over year to a median rent of $1,651.
- Virginia: -3% year over year to a median rent of $1,986.
What’s happening to rent prices?
Just like the West’s housing market had to adjust to a new reality amid the national housing market slowdown thanks to rising mortgage rates, so is the rental market. However, the rent picture is a bit more complicated as more would-be homebuyers are priced out of a mortgage thanks to stubbornly high home prices and mortgage rates that now hover well over 7%.
As the housing market has slowed, so has demand for rental units — indicating fewer households are being formed compared to during the pandemic and more people are choosing to double up. That’s likely due to record unaffordability levels facing the U.S. amid today’s high housing prices, mortgage rates and incomes that have failed to keep pace with the cost of housing.
Still, more Americans are opting not to buy a home, and they’re turning to the rental market. So even though demand has slowed, it’s still expected to stay strong through 2023, according to Realtor.com’s midyear housing market forecast.
However, because it usually costs more to move rather than renew a lease, “existing tenants may opt to stay put in order to save on their budgets,” the Realtor.com report states. “This is likely to dampen the level of competition in the rental market.”
“While we expect a small annual decline in rental prices, it is important to note that rent prices are still significantly high,” Realtor.com economists wrote. “Affordability remains a primary concern in the rental market. As renters actively seek more affordable options, it is expected that affordable markets, particularly those in the Midwest region, will experience relatively faster demand-driven growth in rents.”
It’s also important to note there’s been a surge in multi-family unit construction.
“On the supply side, with newly completed multi-family units in the first quarter of 2023 on pace to exceed 450,000 if this rate is maintained throughout the year, the rental vacancy rate increased to 6.4%, reaching the highest level seen in the past two years,” the Realtor.com forecast states. “This trend is expected to continue in the second half of 2023, with ongoing construction of multi-family units at historically high levels, potentially pushing the vacancy rate towards 7.2%, which was the normal range from 2013 to 2019.”
Housing prices remain high in large part because the U.S. continues to face a stark housing shortage — more than 2 million homes short by Realtor.com estimates. But if the rental market gets a significant boost to supply, that could help ease competition and slow rent price growth.
Why are rent prices still so high in Utah then?
In rapidly growing states like Utah — where population growth and in-migration have fueled demand for housing — rents have been rising steadily for over the past decade.
“The average rental rate in Wasatch Front counties has increased at a rate of 6.5% to 7% annually since 2011, nearly double the rate of increase in the median income of renters,” housing researchers wrote in the “State of the State’s Housing Market” recently published by the University of Utah’s Kem C. Gardner Policy Institute.
Even though this year’s slowdown may alleviate some competition for renters, Kem C. Gardner researchers Jim Wood and Dejan Eskic have predicted Utah’s housing shortage is expected to worsen to over 37,000 units by 2024. They also calculated only 15% of Utah’s renter households have enough income to purchase a modestly priced $300,000 to $400,000 home.
“These long-term renters will face a rental market with rising rents and low vacancy rates,” they wrote.
At least so far, local figures that provide a more detailed picture of the Utah rental market haven’t captured the same dramatic yearly price declines that Rent. illustrated with its online inventory.
According to a recent midyear report by the firm CBRE, which drilled down on Wasatch Front county data in Utah’s multi-family market, there has indeed been a cooling of the multi-family market much like the rest of the nation.
“However, strong fundamentals remain in Utah and investor interest is high,” the CBRE report states, pointing to decreasing inflation, a strong labor market, low unemployment and continued demand for housing.
The Greater Salt Lake area’s monthly average rent was $1,585 by mid-2023, with rent growing 1% year over year as of June 30th — “a stark contrast to the record rent growth the Greater Salt Lake Area has enjoyed for years (5.5% - 6% on average),” the report states.
Meanwhile, vacancy hit 5.3%, a sharper increase since 2021 as a rapid increase in multifamily supply provided more options for renters. However, CBRE predicts high interest rates for new construction will “eventually slow the delivery of new units and will set the stage for future rent growth as the market becomes supply constrained within the next 18 to 24 months.”