The Rise in Rental Prices May Be Running Out of Steam

The rent is still way too high — but the peak may be in sight.

Core consumer prices rose just 0.2% in July for the second consecutive month, according to the Bureau of Labor Statistics, another data point reinforcing hopes that both a recession and more inflation can be avoided. Shelter costs are now up 7.7% over the last 12 months, but that’s down from a 7.8% YoY rise recorded in June.

If You Can Make It Here…

Then there’s New York City. According to a recent survey from appraiser Miller Samuel and brokerage Douglas Elliman, for new leases in Manhattan, Brooklyn, and northwest Queens, median rents were $4,400, $3,950, and $3,641, respectively. And with the school year about to start, those prices are likely to increase.

“We’re arriving at the tolerance level of the market. Leasing activity is weakening, likely due to the record rents — tenants aren’t getting relief,” said Jonathan Miller, president of Miller Samuel. He added that “the economy — despite half-empty office towers — remains vibrant and there is a drive to continuing to be here.”

For those of you who don’t call the Big Apple home, it’s less of a horror show. On a macro level, rent across the US doesn’t ever really decline by significant amounts. So even though the median US rental price in July was just $16 below its record of $2,054 from August 2022, the increases are slowing:

• In the first eight months of 2022, median rents saw year-over-year percent increases in the teens, according to rent.com. But in 2023, those same YoY jumps were often less than 2%. In May, the median rent actually fell 0.6% compared to the same time last year.
• In a new report, real estate firm Redfin found that while median rents increased YoY last month in the Northeast and Midwest — 4.6% and 4.3%, respectively — they rose just 0.3% in the South and even fell 1.1% in the West.

Redfin Deputy Chief Economist Taylor Marr said the housing market tends to be “downside sticky,” meaning prices don’t typically fall substantially even when business is slow. Landlords would rather offer a free month or discounted parking than slash prices.

Humble Home: In just a handful of markets, buying a house has become cheaper than renting. Nationwide, a home generally costs 25% more per month to own than rent, but earlier this summer, Redfin reported that it’s more frugal to purchase a home in Detroit, Philadelphia, Cleveland, and Houston. On the opposite end of the spectrum, trying to buy a home in the Bay Area will cost you twice as much than if you were to rent, so despite what you may read about big box retailers bolting downtown and wobbly commercial real estate, San Francisco still ain’t cheap.