Rental price growth may be slowing — but housing was actually less affordable for tenants in February compared to the previous year, according to a new report from Realtor.com.
February marked the seventh consecutive month of single-digit rent growth, and the median rent across the country’s 50 largest metropolitan areas was up a modest 3.1% from the same period in 2022. However, rental prices were almost 21% higher than 2020’s levels, according to Realtor.com.
February’s median rental price of $1,716 fell $1 from January — and that is likely of little comfort to tenants facing extra monthly costs of $296 than before the pandemic. And there may be more pain ahead still.
“With the Federal Reserve’s monetary policy continuing to tighten, there is expected to be a sustained period of high mortgage rates,” Realtor.com said in its report Tuesday. “As a result, those looking to buy homes may end up renting for longer, keeping demand for rental properties high and driving up rental prices. In addition, if the Fed is unable to achieve its goal of a ‘soft landing‘, renters may once again face challenging circumstances due to high rent costs, inflation, and slow income growth.”
(Realtor.com is operated by News Corp
subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)
In its analysis, Realtor.com used a typical rule of thumb — that renters should spend no more than 30% of their income on housing costs, considered to be a tipping point for becoming “cost-burdened” — to gauge housing affordability in major cities nationwide.
By comparing median monthly rents to estimated median monthly household incomes, the report found renters who make a typical income spent 25.3% of their income to lease a for-rent home in February, compared to 24.8% of their income at the same point last year.
But it was worse in some cities. Eight of the country’s top 50 metropolitan areas “had a rent share higher than 30% relative to the median household income,” Realtor.com said, with the least affordable markets being big coastal cities like Miami, Los Angeles, New York City, San Diego, and Riverside, Calif. A Miami renter making the typical household income, for example, might have spent 42.3% of their income on housing in February, paying $2,349 for a rental unit.
Rental affordability is also withering in markets once considered less expensive, Realtor.com noted, even if it’s not quite at the point yet where renters are spending a third of their income on housing. In Cincinnati, Ohio, for instance, renters typically put 19.4% of their monthly income toward an average rental in February — up from 18.4% the same time last year.
In Birmingham, Ala. where rents were up 9.4% in February on an annual basis, tenants may now spend 22.2% of their income on housing, rather than the 20.4% they might have expected to spend last year. That’s a 1.8 percentage point decline in affordability in a city where a quarter of the population lives below the poverty line, while about 46% of the local housing stock is owner-occupied, U.S. Census data shows.
A separate report out Tuesday from CoreLogic, meanwhile, also showed rent prices are slowing significantly for single-family rentals. Ultimately, single-family rent growth was up 5.7% in January from a year earlier — ”the lowest level since the spring of 2021,” Molly Boesel, principal economist at CoreLogic, said in a statement.
But that slowdown in rent growth was more prominent among higher-income units, with units priced at 125% or more than the regional median rising 4.3% year-over-year, and those priced at 100% to 125% of the regional median up 5.5% — a far cry from the 12.4% annual increase and 13.5% annual increase seen in January 2022, respectively.
Meanwhile, lower-priced units — those charging about 75% or less than the regional median — were up 8.5% year-over-year, higher than all other price tiers and about “three times the pre-pandemic rate,” CoreLogic said.
“While rent growth is slowing at all tracked price tiers, declines for the lowest-cost rentals are not as significant, which raises affordability concerns,” Boesel said. “Annual rent growth for lower-tier properties was about three times the pre-pandemic rate, while gains in the highest tier were nearly one-and-a-half times during the same period.”