US median asking rent dips 1% YoY to $1,633 in May amid high apartment supply

Redfin reported the median U.S. asking rent declined 1% year-over-year in May to $1,633, driven by a near 50-year high in apartment construction outpacing renter demand; 28 of 44 major CBSAs saw rent decreases, with Austin, TX experiencing the largest drop at 8.8%. Conversely, Cincinnati saw the largest increase at 7.4%, reaching a record high, along with Chicago, Memphis, and Washington, D.C., indicating regional disparities in rental market dynamics.

Analysis

The U.S. median asking rent declined 1% year-over-year in May to $1,633, a figure $72 below the August 2022 peak, as reported by Redfin. This trend is primarily driven by a significant increase in apartment supply, with construction levels nearing a 50-year high, which is currently outpacing renter demand. Indicative of this imbalance, the rental vacancy rate for buildings with five or more units was 8.2% in the first quarter, equalling the highest level since early 2021, and the absorption rate for newly constructed apartments is low, with less than half rented within three months. While rents increased 0.5% month-over-month in May, a typical seasonal occurrence, 28 out of 44 major U.S. core-based statistical areas (CBSAs) reported year-over-year decreases, the highest number since September 2023. Regional disparities are notable: Austin, TX, saw the largest decline of 8.8% year-over-year to $1,385, whereas Cincinnati experienced the largest increase, up 7.4% to a record $1,460. Other cities, including Chicago, Memphis, and Washington, D.C., also reached new record high rents. Declines were seen across apartment sizes, with 2-bedroom units falling 1.8% year-over-year, the largest drop since February 2024.

Key Decisions for Investors

• Investors should closely monitor regional divergences in rental markets, as areas with high new apartment supply, such as Austin, may continue to experience downward pressure on rents, impacting residential REITs and property investment yields in those locales.
• Consider the implications of elevated vacancy rates and slower absorption of new units for developers and multifamily property owners, as sustained oversupply could lead to further rent concessions or stagnant growth.
• Focus on markets demonstrating rental pricing power, like Cincinnati, Chicago, and Washington D.C., which may offer more resilient investment opportunities in the residential real estate sector despite broader national trends of moderating rent growth.