Rent Prices Have Declined Two Straight Months, But What Does It Mean?

National Rent Report

Please consider the latest National Rent Report by Apartment List.

Our national index fell by 0.7 percent over the course of October, marking the second straight month-over-month decline, and the largest single month dip in the history of our index, going back to 2017. These past two months have marked a rapid cooldown in the market, but the timing of that cooldown is consistent with a seasonal trend that was typical in pre-pandemic years. Going forward it is likely that rents will continue falling in the coming months as we enter the winter slow season for the rental market.

Despite the monthly decline, rent growth over the course of this year continues to outpace the pre-pandemic trend, even as it has slowed significantly from last year’s peaks. So far in 2022 rents are up by a total of 5.9 percent, compared to 18 percent at this point in 2021. Year-over-year growth has decelerated rapidly since the start of the year, but it’s still likely that 2022 will end up being the second fastest year of rent growth since the start of our estimates.

We estimate that the national median rent fell by 0.7 percent month-over-month in October. This is the largest monthly decline in the full history of our index, which starts in January 2017. Our national rent index has now declined for two straight months, and is down by 1.1 percent since August. A modest decline in rents at this time of year is consistent with the normal seasonal trend that we typically see in our rent index. But given how atypical the market has been for the past two and a half years, this return to pre-pandemic seasonality represents a notable shift.

Percent Change From Year Ago

Chart Notes

• The National Rent Price is from ApartmentList.Com.
• OER stands for Owners’ Equivalent Rent, the price one would pay to rent one’s own house from oneself, unfurnished and without utilities.
• Rent of Primary residence is just what it sound like, typical rent. That number and OER are from the BLS.

Key Numbers

• National Rent Price September 2022: $1,382
• National Rent Price October 2022: $1,371 
• National Rent Price October 2021: $1,297

Using the Apartment List national data download, I calculate slightly different numbers. 

Month-Over-Month = ((1371-1382) / 1371) * 100 = -0.80%

Year-Over-Year = ((1371-1297) / 1297) * 100 = +5.71% 

Apartment List Stated Methodology

• “We calculate growth rates using a same-unit analysis similar to Case-Shiller’s approach, comparing only units for which we observe transactions in multiple time periods to provide an accurate picture of rent growth that controls for compositional changes in the available inventory.”
• “We capture repeat transactions – when a single apartment gets rented more than once over time – and check whether the transacted rent price has changed between those transactions.”
• “Rent estimates reflect prices paid by renters, not list prices for units that remain vacant.”

CPI Month-Over-Month OER and Rent 

Key Difference to BLS

Although Apartment List uses repeat rents of the same or similar unit and prices are are actual prices, not asking prices, it only shows new leases, not repeat leases.

Because new leases on vacant units rise much more rapidly than existing leases, its year-over-year numbers rise or fall faster and in greater magnitude.

The National Rent price reflects year-over-year changes, but in reality, people pay the same amount of rent for 12 months then there is one big price jump.

The Narrative

“US Rents fell 0.8% in October, the second straight monthly decline. The year-over-year % increase has now moved down for 11 consecutive months after peaking at 18.1% last November. At 5.8%, this is the smallest YoY increase since May 2021.”

Rent Reality Check 

Rent and OER have risen every month this year. In fact, rent and OER have gone up every month since at least January of 2017. 

BLS Look Ahead

OER and Rent of Primary Residence are still trending up. The Year-Over-Year Apartment List rise is still a hefty 5.71 percent by my calculation. 

Since BLS data is seasonally adjusted and weighted (with fewer rentals taking place October-December), we may not see any CPI relief based off the record Apartment List rent price plunge

The above chart provides a needed reality check to those who think rent prices are about to plunge based off Apartment List data. Perhaps that happens, but seasonal adjustments and history suggest otherwise.

This post originated at MishTalk.Com.

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