Year-over-year Rent Growth Continues to Decelerate

Today, in the Calculated Risk Real Estate Newsletter: Year-over-year Rent Growth Continues to Decelerate

A brief excerpt:

Tracking rents is important for understanding the dynamics of the housing market. For example, the sharp increase in rents helped me deduce that there was a surge in household formation in 2021 (See from September 2021: Household Formation Drives Housing Demand). This has been confirmed (mostly due to work-from-home), and also led to the supposition that household formation would slow sharply now (mostly confirmed) and that asking rents might decrease in 2023 on a year-over-year basis.

This is important for understanding housing, but also for monetary policy. Asking rents reflect new leases, whereas most rental units see annual rent increases. These annual increases are captured by the consumer price index (CPI) and personal consumption expenditures (PCE) prices. So, shelter in CPI is significantly lagged to asking rents.

But there is more! Once we understand that asking rents will likely be flat to down year-over-year - due to the slowdown in household formation and more supply coming on the market - this suggests shelter in the CPI could be flat in the future. That means we shouldn’t just look at various measures ex-shelter, but we should assume shelter will be lower than overall inflation in the future!
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Here is a graph of the year-over-year (YoY) change for these measures since January 2015. Most of these measures are through March 2023, except CoreLogic is through February and Apartment List is through April 2023.
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The CoreLogic measure is up 5.0% YoY in February, down from 5.7% in January, and down from a peak of 13.9% in April 2022.

The Zillow measure is up 6.0% YoY in March, down from 6.3% YoY in February, and down from a peak of 16.9% YoY in February 2022.

The ApartmentList measure is up 1.7% YoY as of April, down from 2.4% in March, and down from a peak of 18.3% YoY November 2021.
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My view is it is likely that we will see a year-over-year decline in asking rents sometime in 2023.

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