Apartment Rents Decline in More Than Half of U.S. Markets

A Redfin report indicates that U.S. apartment rents are under downward pressure due to record new supply, with the median asking rent decreasing 1% year-over-year to $1,633 in May. Over half of the country's core-based statistical areas experienced declining rents, the highest number since September 2023, with Austin seeing the steepest decline at 8.8%; conversely, Cincinnati saw the largest increase at 7.4%, and markets with less multifamily construction are generally experiencing rent increases.

Analysis

The U.S. apartment rental market is experiencing downward pressure on rents due to a record influx of new supply, despite strong underlying demand. According to a May Redfin report, the national median asking rent decreased by 1% year-over-year to $1,633, although it saw a slight 0.5% month-over-month increase. This figure remains $72 below the peak observed in August 2022. Notably, over half of the 44 core-based statistical areas analyzed reported declining rents, the highest proportion since September 2023, indicating a broadening trend of softening. Redfin's senior economist, Sheharyar Bokhari, attributes this to apartment construction nearing a 50-year high, outpacing even robust renter demand and leading to increased vacancy and negotiating power for tenants. The market shows less volatility than during the pandemic, with rent movements confined to approximately 1% over the past 15 months. Regional disparities are significant: Austin witnessed the steepest year-over-year decline at 8.8% (to $1,385), a direct consequence of high multifamily permitting (nearly 65 units per 10,000 people). Conversely, Cincinnati experienced the largest rent increase at 7.4% (to a record $1,460), with markets like Chicago, Memphis, and Washington D.C. also hitting record highs, generally correlating with below-average new multifamily construction. By unit type, two-bedroom apartments saw the most significant rent fall in May, decreasing 1.8% to $1,704.

Key Decisions for Investors

• Investors in residential real estate, particularly multifamily assets, should closely scrutinize local market supply pipelines, as areas with high construction volumes like Austin are experiencing significant rent declines, while markets with below-average permitting are seeing rent growth.
• Consider re-evaluating geographic allocations within real estate portfolios, potentially favoring metropolitan statistical areas (MSAs) with limited new multifamily supply and demonstrated rent appreciation, such as Cincinnati, Chicago, and Washington D.C., over those with surging supply.
• Landlords and REITs with exposure to oversupplied markets should prepare for continued pressure on net operating income and may need to employ strategic concession management and tenant retention initiatives, particularly for two-bedroom units which are currently experiencing the steepest rent decreases.