The price on new apartment leasers declines again, but when do existing renters get a break?

National rent price data from ApartmentList, OER and CPI data from the BLS, chart by Mish

Apartment List reports the fifth consecutive drop in apartment rent prices but that may not translate to your next lease renewal.

National Rent Report

Please consider the latest National Rent Report by Apartment List.

Our national rent index fell by 0.3 percent over the course of January, marking the fifth straight month-over-month decline. This month’s price dip was notably more moderate than the record-setting declines we saw from October through December. That said, January’s decline was still sharper than the usual seasonal trend, signaling the continuation of a broader cooldown in market conditions.

Year-over-year rent growth is continuing to decelerate, and now stands at 3.3 percent, its lowest level since April 2021. Year-over-year growth is now pacing just slightly ahead of the average rate from 2018 to 2019 (2.8 percent), and is likely to decline further in the months ahead.

The cooldown in rent growth is being mirrored by continued easing on the supply side of the market. Our vacancy index now stands at 6.1 percent, surpassing 6 percent for the first time since spring of 2021. With a record number of multi-family apartment units currently under construction, we expect that supply constraints will continue to soften. 2023 could be the first time in years that we see property owners competing for renters, rather than the other way around.

Widespread Rent Decreases

The recent slowdown has been geographically widespread. Rents decreased in January in 67 of the nation’s 100 largest cities. Newark, NJ saw the nation’s sharpest decline, with prices down by 2.3 percent month-over-month. San Francisco, New York City, Seattle, and Washington, D.C. all experienced monthly declines of more than double the national rate. Over the past six months as a whole, no large metro area in the country has experienced positive rent growth.

Are Rents Declining?

It's not that the Apartment List data is wrong. Rather, it has to do with what they measure.

First, let's consider how things look year-over-over-year.

Percent Change From Year Ago

National rent price data from ApartmentList, OER and CPI data from the BLS, chart by Mish

Chart Notes

• The National Rent Price is from ApartmentList.Com.
• OER stands for Owners' Equivalent Rent, the price one would pay to rent one's own house from oneself, unfurnished and without utilities.
• Rent of Primary residence is just what it sound like, typical rent. That number and OER are from the BLS.

Apartment List Stated Methodology

• "We calculate growth rates using a same-unit analysis similar to Case-Shiller’s approach, comparing only units for which we observe transactions in multiple time periods to provide an accurate picture of rent growth that controls for compositional changes in the available inventory."
• "We capture repeat transactions - when a single apartment gets rented more than once over time - and check whether the transacted rent price has changed between those transactions."
• "Rent estimates reflect prices paid by renters, not list prices for units that remain vacant."

Three Key Difference to BLS

1. Although Apartment List uses repeat rents of the same or similar unit and prices are are actual prices, not asking prices, it only shows new leases, not repeat leases.
2. Because new leases on vacant units rise much more rapidly than existing leases, its year-over-year numbers rise or fall faster and in greater magnitude.
3. The National Rent price reflects year-over-year changes, but in reality, people pay the same amount of rent for 12 months then there is one big price jump.

Point number 2 above reflects the huge 18 percent year-over-year-peak vs 7.5 percent for rent of primary residence in the previous chart.

The lead chart also shows 2.5 percent month over month growth for three consecutive months with the BLS reporting 0.2 percent growth.

Seasonal Tendencies

The strong seasonal tendencies of Apartment List are smoothed over by the BLS every year. 

To explain the magnitude change in 2022 including a record 1 percent decline in November, just look at the massive spikes this year and last that preceded it.

Remember, ApartmentList reflects new leases not renewals of existing leases. With Covid, there was a huge increase in work-at-home and huge demand from people escaping the cities to the suburbs.

Finally, note the time lag between ApartmentList and the CPI.

BLS Look Ahead

The above charts provide a needed reality check to those who think rent prices are about to plunge based off Apartment List data.

Three months ago I commented "I suspect we have strong increases in rent in the CPI despite the declines of ApartmentList for at least the rest of the year, and if so continuing into 2023."

New Homes Under Construction

New home sales report by stage of construction from Census Department, chart by Mish

This year there will be a huge number of apartment construction completions. That is more likely to have an impact than the seasonal tendencies of ApartmentList.

Powell's View of Rent

During Wednesday's press Q&A with Jerome Powell after the FOMC announcement the subject of rent came up a few times, once directly and at least twice indirectly in reference to services.

Powell noted that although prices of goods was coming down, services and especially core services have not declined as much.

Powell reiterated a couple times that the Fed's work was not finished and that he expected rent prices to rise for a few more months. 

For more on the FOMC announcement, please see Fed Hikes by 1/4 Point as Expected, Commits to More Rate Hikes.

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