Recent Nationwide Rent Decrease in 27 Biggest Cities

Source: Jp Valery on Unsplash

Market conditions have completely reversed in just 12 months.

After a 20-month streak of increasing rent amounts in the United States, prices finally fell 0.1% in August 2022, according to Apartments.com. In fact, prices fell in 27 of the 40 biggest cities in the United States, indicating that the recent price surge is widely easing.

Of course, that’s left a lot of real estate investors concerned and asking questions like: What should landlords do about it? What caused it in the first place? And how can we address these issues? Well, let's discuss these below.

Background on the US Housing Market

Historically, we didn't have sufficient housing inventory, so there was intense buying competition that pushed property prices to crazy heights. Interest hikes and inflation further propelled the trend, putting additional pressure on housing costs. Everybody struggled with homeownership a few years back—investors and non-investors included—and it was terrible.

Thankfully, buying demand eventually reduced, which led to a drop in home prices and a spike in rent amounts. As increasingly more Americans were priced out of owning homes, many returned to renting and causing rent prices to skyrocket to favorable, investable rates.

But the market has since changed gears, bringing rent prices down to a disappointing anti-climax. Simply put, the market slowed down, where rent fell 0.1% through August 2022 in the nation's most extensive metropolitan areas. Renters celebrated financial relief, but the news meant investors and landlords now have lower cash flow and rental income potential.

Significance of Rent Decrease in Recent Months

Rent prices were already at an 8.4% pace in the same period of last year, but they're now at 7.1%. Specifically, in our home area City of Detroit, rent prices have dropped 0.5% month-over-month, as shown below:

Source: Apartments.com

Rent prices dropped most notably in Sunbelt cities, the areas that saw the most increase over COVID-19. For example, Nashville rents fell by 1.1%, marking the most significant one-month decline across all 40 cities tracked by the data. At the same time, San Francisco had the most significant drop in dollar terms, where its 0.9% decrease equated to a $29 decline in the city's average monthly rent.

In contrast, the likes of Orange County and California saw rent prices climb or remain steady amidst the nationwide decline in August, assuring its local investors of the gains they hoped to reap.

“After a 20-month run of positive monthly growth dating back to December 2020, the market finally witnessed negative asking rent growth on a monthly sequential basis from July to August, with rents down 0.1% in July,” said Jay Lybik, the national director of multifamily analytics at CoStar Group.

“We're seeing a complete reversal of market conditions in just 12 months, going from demand significantly outstripping available units to now new deliveries outpacing lackluster demand.”

How You Should Handle Rent Decrease

It'll be some time before we feel the effects of such a rent price decline. In fact, Moody Analytics report that since 2020, nearly all (89%) of the nation’s top metropolitans experienced an uptick in rent-to-price ratios, where tenants have to pay more than usual for housing. So you might still enjoy the smooth and profitable ride right now.

Some places like the City of Detroit are also experiencing a labor shortage in construction and maintenance, too. While it brings challenges to property developers, it’s excellent news for rental property investors as the demand for housing stock is increasing.

However, you must be vigilant and ready should average rents continue to decline. There are several ways you can stay proactive, but three of the most crucial things are the following:

• * Review your situation and make adjustments to ensure profit in the business. Don’t think about what you want to achieve; think about what makes the most sense for you to handle rent price decreases with the least financial impact.
• * Focus on making your property more attractive by increasing its curb appeal, carrying out necessary repairs, and keeping up with maintenance. Rent prices may decrease, but the tenant's desire for beautiful and safe homes will remain unchanged.
• * Utilize technology to save time and focus on the business side of things, automating various tasks like rent collection and tenant communication. If it makes financial sense, hire a property management company so you don’t have to handle daily rental business tasks.

It goes without saying, but you must stay updated with the latest industry news and market trends. Doing so will help you anticipate changes and take action before anything is affected—unstable cash flow, decreased rental income, heightened vacancy rates, and more.

Adapt, Improvise, and Overcome Market Challenges

The market is dynamic, and we can’t change that. Instead, we adapt and improvise to overcome negative movements and stay profitable in spite of challenges. Rent prices may continue to decline, but that doesn’t change the fact that rental property investing is worth your time, giving you great wealth if done with wit, confidence, and expert help by your side.