Rents are falling faster than “seasonal alone”

by calculated risks 12/01/2022 12:16:00 PM

Today, in Calculated Real Estate Newsletter: Rents Are Falling Faster Than “Seasonal Alone”

Brief excerpt:

Here is a graph of the year-over-year (year-on-year) change for these measures since January 2015. All of these measures through October 2022 (apartments list through November 2022).

Note that new rent measures (Zillow, apartment listing) fell early in the pandemic, while BLS measures were flat. Then new leases kicked in, and BLS measures started to pick up.

Zillow’s measure rose 9.6% yoy in October, down from 10.8% yoy in September. This is down from a peak of 17.1% yoy in February.

The ApartmentList metric was up 4.5% year over year as of November, down from 5.6% in October. This is down from a peak of 18.1% year-on-year last December.

Rents are still rising year-over-year, and we expect this to continue to impact our inflation metrics. Owner’s equivalent rent rose 6.9% yoy in October, from 6.7% yoy in September – and is likely to rise further in the coming months even as rents slow sharply.

I suspect rent increases will slow further over the coming months as the pace of household formation slows and more supply comes into the market. “An actual decline in rents next year would be a reasonable base case,” housing economist Tom Lawler wrote recently. This is important for monetary policy.

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