In the face of growing living expenses, rent prices remain a top item of concern for most. Indeed, we all need a place to live, and extrapolating how housing costs will go up or down over a period of time is important for those managing their budgets.
Thus far, rent prices have remained relatively sticky to start the year. Much of this has to do with the economic recovery coming out of the pandemic, the housing shortage and high mortgage rates. Housing price spikes went wild from 2021 to 2023, leading to rent price growth. And while these rates of growth have thankfully calmed down, prices still haven’t dropped. Rent prices are still around 30% higher than where they were pre-pandemic.
Affordability takes the spot as a top priority in 2024, and with national rental inflation declining, this should ease cost concerns for most renters moving forward.
With that said, renters and homeowners will start to wonder if prices will drop in 2024. If so, what factors should we all take into account? This article will go into great detail to address these questions.
Real Estate in 2024
When the pandemic happened, multifamily construction rebounded, but completion times ran a little longer because of supply chain issues and labor shortages. Rent price growth may ease once projects are completed, but single-family rentals face higher growth. Single-family rents jumped 4.7% from January 2023 to January 2024, compared to multifamily’s 2.7%. We’re looking at challenges in affordability and delayed millennial homebuying for this, which resulted in high single-family rent demand.
Experts are looking for moderate rent increases in 2024, helping tenants who want savings. Zillow’s (NASDAQ:Z) Emily McDonald reports a stable rental market and fewer drastic increases.
Last year, rent fluctuated because of more excellent buildings and better apartment supply. That trend might continue in 2024, with rent increases within the low single digits. That stability is a welcome respite for many tenants who experienced two hard years of rent increases.
The fact that national rent averages are still higher than three years ago, even though they are marginally lower than last year, suggests the renting market has changed. Plus, it hints that landlords can no longer raise rents dramatically.
Will Rent Lower Down?
You can see in The Zumper National Rent Report the slight year-over-year increases in one-bedroom apartments and two-bedroom units. The report also shows a 1% decline in one-bedroom flats from September 2023’s all-time high of $1,511, a sign of shifting supply-demand dynamics. The sluggish winter months increase renter’s leverage, while fewer pandemic-related relocations and more recent multifamily projects contribute to this trend.
Zumper CEO Anthemos Georgiades advises tenants to take advantage of favorable lease conditions by renegotiating leases or looking for new rentals. More buildings will likely open, with over 10,000 properties on Zumper giving concessions like free rent. Rental demand may dip slightly because of increased first-time homebuyers, but consumer interest remains low.
Speaking of rent concessions, they’re increasing in the current market, with a third of Zillow-listed rentals having this as a feature. That trend persisted until November 2023, with concessions growing to 32%. McDonald advises renters to view these offers, like free month’s rent or waived fees, as opportunities but to be careful. Free perks just might have hidden costs up its sleeves.
As more homeowners choose to rent to avoid high mortgage rates, increased rental inventory is around the corner for 2024. Because of this surplus, renters will have more options since landlords won’t have the power to raise rent above market rates anymore. But how would the city bring down rent, you ask? At least 40,000 additional rental units should show up.
Factors to Consider Before Renting
It’s still hazy if U.S. rents will be cut down in 2024. But there are signs. Renters, you need to keep an eye on market developments. It’s tricky to see future rental market predictions because of a variety of reasons, including:
Economic movement
Recessions and other economic downturns affect the markets, influencing interest rates, inflation and rent affordability. A stable housing market depends on controlling rent dynamics. Important influences include the job market’s state and how many houses are built; strong job growth boosts demand, while construction levels have a say on supply and rental prices.
Housing expenses are affected by inflation and interest rates. It’s why landlords raise rent, which then affects demand. Local economic factors like industry diversity also influence real estate rates and rental prices, with strong economies usually getting higher rents.
Housing supply and demand
Rent rates are significantly impacted by the supply and demand balance for housing, with shortages driving up prices and surpluses driving them down. Regional differences also have a hand in this.
A University of California system study from 2022 shows that more housing availability does not immediately mean lower prices. Because of increased demand, new developments may raise rents initially. But prices can inflate as a result of strict regulations or pushback from NIMBY, as you can see in places like Austin, Texas.
Eric Levitz argued that the new market-rate housing can lower rent for working people by attracting high-income renters and easing demand. He also highlighted the doubt “supply and demand” is getting, which makes the housing crisis worse. Research shows a rise in housing supply connects to price declines, while supply constraints connect to higher prices. Factors like construction activity, housing stock and rental prices significantly affect real estate prices.
Although not much, property taxes can also affect pricing. Changes in housing prices can make huge dents in local consumer prices, which go up and beyond conventional metrics like the Consumer Price Index. It also leaves a mark on the cost of living and consumer welfare.
Location
Cities and regions will have different rent pricing, so all potential tenants should consider the local economy. Being close to amenities like schools and transportation hubs has a hold on demand and prices, making location a significant consideration. Higher rentals are usually found in safe neighborhoods but don’t underestimate the convenience, which is greatly enhanced by being close to job centers.
Natural landmarks, nearby parks and scenic views also affect the rental price. Properties often get charged for having access to green areas and excellent views. Take a suburban home — it is peaceful and cheaper than an apartment close to amenities.
Availability and affordability differ significantly between areas, so remember the local economy.
Bottom Line
There has been some buzz about a possible market meltdown in 2024 because of rent price fluctuations. But if we look at the signs, it shows that the trend is colling. An increasing supply of rental units and a rise in interest rates bring down prices.
In 2024, a weakening economy could lead to price drops in rent as people are looking out for cheaper homes because of job losses or salary reductions. Conversely, factors like economic stability and inflation can support high rent rates.
Right now, it appears rents (as they’re calculated in most inflation reports) may include a lag, and we could see rent prices come down over time. While I’m not sure to what degree, such a move would be positive for existing renters and those looking to potentially rent in the years to come.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
