Rhino Chief Revenue Officer Andrew Delbridge about decreasing rental property prices. The company executive addressed reasons for the apparent faltering after three years of reasonably steady numbers.

“The recent decrease in average rental prices can be attributed to two main factors. First, low interest rates led to a surge in multifamily rental construction during the pandemic, increasing the number of available rental units. The heightened competition among landlords has put downward pressure on prices,” Delbridge told Valuation Review. “Secondly, rental growth has slowed somewhat as many people are choosing to stay in their current residences because of economic uncertainty and inflation. This decreased rental demand has contributed to a moderation in average rents.”

Delbridge also commented on his reaction to the lowest median asking price in 13 months, down 17.5 percent from a year ago. He told us the low median asking price reflects a new trend in the rental market, influenced by a cooling economy and the Federal Reserve’s efforts to curb inflation. Rent prices surged in the past two years, he noted, due to increased incomes and rising household formation, particularly among millennials starting families. However, the recent decline in median asking price indicates a moderation in rental prices as the market adjusts to current economic conditions.

Still, Delbridge preaches “caution” as rent prices are nearly 20 percent higher than pre-pandemic levels and $45 billion remains locked up in rental security deposits.

“While a drop in average asking prices is a positive development for some renters, there are still many markets where prices haven't declined. And overall, rents are still up nearly 20 percent as compared to pre-pandemic levels,” he said. “The tremendous amount of capital locked up in security deposits benefits neither renters nor property owners. There are simply better ways for owners to protect their assets while putting money back in renters’ pockets. Security deposit insurance, for example, achieves both outcomes.”

As to which locations had the largest declines in rent, Delbridge pointed out the March data showed that the year-over-year change in asking price declined the most in Austin, Texas, (-11 percent) and Chicago (-9 percent), while Indianapolis, Charlotte, N.C., Cleveland and Raleigh, N.C. all had double-digit increases, with Raleigh being the highest (up nearly 17 percent). Those metros remained up in the April data, too.

Generally speaking, the Rhino executive said Midwest housing markets have remained resilient during the pandemic, compared to booming cities like Austin and Phoenix. Unlike the southern and western markets, the Midwest has not experienced significant waves of population shifts which are major drivers of housing booms and busts.

One opinion is that while rents are falling, it feels more like they’re just returning to normal, which is healthy to some degree. And the millennial factor played a significant role in the rental market for three primary reasons: increased income, rising interest rates and growing families. 

“While we are still seeing above average monthly rent growth, rent prices are gradually declining and stabilizing, which can be considered a return to a more normal state,” Delbridge said. “This adjustment is healthy, as it helps align rental prices with the overall economic conditions and demand in the market.

“Mortgage rates have skyrocketed in recent months. May 2023 rates rose to nearly 6.9 percent, causing some millennials to opt for renting instead of owning, further fueling the demand for rental units among millennials,” he added. “More millennials are starting families, creating a growing need for larger living spaces. The limited availability of multifamily units relative to the increasing demand has intensified competition and resulted in higher rental prices.”

The conversation also revolved around that fact that household formation is “slowing.” Delbridge pointed out that there are several reasons. For one, rising interest rates mean it’s now more expensive to borrow and fund new construction than it was in 2020 and 2021.

“In addition, inflation has increased the costs of goods and services across the board, so fewer renters are motivated to take on a higher rent, even if it would mean better amenities. They are also not eager to come up with even more cash for a higher security deposit,” Delbridge said. “Property developers are paying attention to these trends as well as the high cost of labor and materials. As a result, the National Association of Home Builders has projected that multifamily starts will slow by nearly 30 percent this year.”

Delbridge also said economic uncertainty plays a significant role in rent prices. It prompts caution among renters and landlords. During uncertain times, individuals may face job insecurity or reduced income, impacting their ability to afford high rents.

“Uncertainty can also slow down construction activity and limit rental unit availability. Tighter credit conditions or higher interest rates can prompt individuals to choose renting over homeownership, increasing demand for rental properties and affecting rent prices. Economic uncertainty also influences market sentiment and consumer behavior, leading to fluctuations in rental demand,” Delbridge said.

He also talked about the short-term rental market and its effect on the numbers, as well as the market “cooling,” a bit.

“The short-term rental market has had an impact on the rental prices, particularly in popular tourist destinations or areas with high demand for temporary accommodations. The rise in short-term rentals has reduced the availability of long-term rental properties, leading to increased competition and potentially higher rent prices,” Delbridge said. “Property owners have been drawn to the potential for higher returns in the short-term rental market, which further limits the number of long-term rental options. These factors contribute to the overall dynamics of the rental market.

“This is due primarily to a combination of oversupply and reduced demand, for reasons explained above: low interest rates prompted significant new development, while inflation, labor and supply costs slowed that construction and tamped down renter demand,” he added.

We also examined whether there are more renting options now, as opposed to during the pandemic. The answer is complex, Delbridge noted.

“The numbers indicate that, yes, there are more rental units in the U.S. today than there were in 2020. But where they are and whether renters always see them as viable are different questions entirely,” he said. “The Sun Belt saw the lion’s share of new construction during the pandemic, as remote workers flocked to affordable housing and warmer destinations. The Midwest and East Coast, for example, didn’t experience the same kind of boom. And now, other factors like inflationary increases in everyday goods and services have many renters wanting to stay put instead of reaching for a newer, bigger and more expensive rental.”