Rent price growth is slowing, but renters still can’t save enough to buy
After skyrocketing during the pandemic, rents are now growing at a modest pace — but for many renters, buying a home remains out of reach.
- Rent prices rose 4.7% year-over-year in October, the slowest pace in 18 months.
- The median monthly rent was $1,734, down $25 compared to September.
- The big jumps in rent during the pandemic have made it difficult for renters to save for a down payment.
The rise in rents is starting to slow across the U.S., but it's still a grim picture for renters trying to save up to buy a home.
Although both reports show a slowdown in rent price growth, monthly rents are still rising modestly, adding to the big increases seen during the pandemic.
"While it's encouraging to see smaller price increases, it's important to understand that many renters have already absorbed large increases in their monthly rental costs over the past several years, which is impacting their ability to save," said Ryan Coon, vice president of rentals at Realtor.com.
Rents are high, but mortgages are even higher
The median monthly rent in the U.S. was $1,734 in Realtor.com's report, down $25 compared to September. Meanwhile, the median mortgage payment has skyrocketed to over $2,600 a month, according to a recent Redfin report.
The affordability gap between rent and mortgage payments may keep renters out of the homebuying market for some time. In addition, still-rising rents, coupled with high inflation, are making it harder to save money for a down payment.
"The length of the impact on homebuying is really going to depend on how long it takes renters' budgets to rebound," said Danielle Hale, chief economist at Realtor.com, in an email. "Wages are growing at a faster rate than usual, but they aren't keeping up with inflation and rising costs of living. Getting inflation back down will help get household budgets back on track."
Those challenges are making renters pessimistic about buying a home. Realtor.com found that less than a third of renters surveyed said they plan on buying a home in the next 12 months. The biggest reasons for not buying a home were that they didn't have enough savings for a down payment or they didn't think they would qualify for a mortgage.
Multifamily inventory, rent increases will influence future rent growth
Where rent prices go next depends on a few different factors. With the slowdown in the single-family home market, builders are taking on more multifamily projects, so a larger supply of apartments could further slow rent growth, Hale said.
However, inflation has also impacted landlords, so many are planning to continue raising rents where they can. More than two-thirds of landlords surveyed are planning to raise rent in the next 12 months, but at lower rates than in previous surveys.
While 34.7% of renters attempted to negotiate a smaller rent increase when their rent was most recently raised, only 6% of all renters were successful in doing so. The survey did indicate that landlords were more likely to negotiate decreases in rent to renewing tenants compared to new renters.
"High inflation and the cost of upkeep and repairs are hitting landlords, who have had to raise rents to cover their higher cost of owning the properties and making it unlikely that they'll be open to negotiating with new tenants," said Coon.
Given the state of the market, could potential sellers opt to rent out their homes instead of selling them, creating more supply to further slow rent growth? Hale said it's possible, but she hasn't seen data that supports it.
"My expectation is that no, this is not likely a phenomenon right now," Hale said. "For the most part, home prices have not declined on a year-over-year basis. Rather, the cost of finding somewhere else to live (high prices and mortgage rates on the next home) is what's holding back a lot of potential sellers.
"If prices start to fall, then I think this is more likely a possibility, but even then, longer-term homeowners would still most likely be looking at a net-gain upon the sale of a home, so they're not disincentivized to sell for this reason," Hale said.