After a series of record highs in rental prices, Americans are renting fewer apartments, and demand in the third quarter fell to its lowest level in 13 years.
Some renters prefer to bring in roommates, while others move in with friends or family members. More people tend to stay longer in their parents’ house or return to it after moving out, than to pay the rising rental prices, according to a survey by UBS.
Demand for apartments in the quarter, measured by the change in occupancy compared to a year ago, was the lowest since 2009, when the US was suffering from the consequences of the subprime crisis, according to RealPage, a software company for the rental market. On a quarterly basis, the decline in demand is the sharpest in every third quarter – on the way In general, this is the strongest quarter for rentals – it’s been more than 30 years, according to RealPage data.
Meanwhile, the vacancy rate rose to 5.5% in the third quarter, up from 5.1% in the previous quarter, according to real estate data company CoStar.
Price increase also in other expenditure items
Rental prices have increased by 25% compared to the previous two years, according to the rental website Apartment List, pushing more renters beyond their means. Meanwhile, the price increase in other expenditure items, such as food and energy, is eating into the money that can be spent on housing.
“This is a signal that the rent cannot continue at the same level it has been in the last two years,” says Michael Goldsmith, an analyst at UBS. “We are reaching a point where the tenants may want to exit the market.”
It seems that the residential rental market is cooling down after a “boom” that started in early 2021. After learning about the corona virus, many people – mainly young people who lived with their parents – rushed to find a place in cities throughout the country. They inflated the demand for apartments and added pressure to prices. Some apartments were even “victims” of a price war.
The record house prices played a part in this. They took out of the game some of the Americans who wanted to buy first homes but instead remained captives in the rental market. However, house prices are currently falling on a monthly basis, according to the Case Shiller index.
Rent prices have started to fall on a monthly basis for the first time in almost two years, and recent data shows that renters are starting to fight back.
Shonda Austin, a medical worker, and her three children moved into her mother’s home in Flint, Michigan this month after experiencing a 24% increase in rent in Las Vegas. She hopes to be back in her own home by March in cheaper places, like Arkansas or North Carolina, where she might be able to shop. “My goal is to save as much as I can,” Austin says.
The supply of new apartments, which has increased this year in major markets such as Phoenix and Dallas, may be contributing to the decline in overall demand, as new projects add empty apartments to the cooling market. The economic uncertainty along with fears of a recession may also contribute to the decrease in demand for apartments.
The rental market is usually easier in colder months, but analysts say the decline in demand started earlier this year, and is greater than expected. Multi-family, in CoStar.
But even with the recent decline in demand, asking prices for rental apartments have remained near record highs. Across the country, demand prices started to drop slightly from month to month but are still 6% higher and even more on an annual basis, according to some data. In some hot markets, they have gone up much more than that. In Charleston, South Carolina, rents are 14% higher than a year ago, according to Apartment List.
18% lived with partners or family members
To escape the high prices, more people are choosing to live rent-free, with family or friends, according to a UBS survey from September.
Eighteen percent of U.S. adults surveyed said they lived with someone without paying rent in the past six months — up from 11 percent at the same time last year. That’s the largest share of adults living with family and friends since UBS began conducting the survey in 2015.
Other tenants find roommates or split the rent between relatives. In North Charleston, South Carolina, bartender Bailey Byrum, 27, says her younger sister moved in with her in the two-bedroom house. Byrom says her sister had trouble finding her own place and recently lived with her parents.
“She has a good job… but apartments alone cost about $500 or $600 over her budget,” Byrom says.
Alongside this, there are tenants who show resistance to the sharp price increases by the apartment owners.
In downtown Birmingham, Alabama, Kim McCann and her husband rented a loft apartment last year for $2,800 a month – a price that already seemed excessive to them, according to McCann. Last July, the owner of the house texted McCann and informed her that she was raising the rent by another $900 per month because the demand in the area is “crazy”.
McCann and her husband decided not to pay $3,700 a month for the apartment, and vacated it in August. The loft was vacant until last week, according to the sales site Zillow, when the price was cut in half. “I’m crossing my fingers that other landlords come to their senses now,” says McCann.