U.S. Rents Moderating, but Affordability Issues Linger
Increase in rents slowing nationally, but Florida remains overvalued.
December 2022 rents fell in 71 of the nation's 100 largest metropolitan areas, an indication that the U.S. rental crisis is easing, even as markets in Florida remain overvalued and unaffordable for many consumers.
Rents in Syracuse, New York fell the most, dropping 1.95 percent from November to December, according to the Waller Weeks and Johnson Rental Index, a collaboration by researchers from Florida Atlantic University, The University of Alabama and Florida Gulf Coast University. Scranton, Pennsylvania had the second-largest rent drop at 1.72 percent, followed by Winston-Salem, North Carolina at 1.41 percent.
“Falling rents is the result of the supply of units beginning to catch up with the demand for rentals,” said Ken H. Johnson, Ph.D., an economist in FAU’s College of Business.
But rents remain elevated in some markets, particularly Florida. The most overpriced rental market in the nation in December was Cape Coral-Fort Myers, where renters paid 17.85 percent more than they should based on a history of rents. The market's average rent in December was $2,251.39, up 1.25 percent from November.
North Port-Bradenton is the next most overvalued market with a 14.72 percent premium, followed by Miami at 14.66 percent. The full rankings can be found here.
Hurricane Ian devastated Cape Coral-Fort Myers in late September, and the area's rental market is still trying to recover, said Shelton Weeks, Ph.D., of Florida Gulf Coast University’s Lucas Institute for Real Estate Development & Finance.
"Many units were destroyed in the storm, while others were severely damaged," Weeks said. "The market already had a limited supply of units so it is not shocking to see rents in December jump in Cape Coral. We still have quite a ways to go before the rental market in Southwest Florida normalizes.”
Markets clustered in California are some of the best for renters. Stockton, San Francisco, Modesto, Sacramento and San Jose all rank among the nation's smallest rental premiums. Minneapolis had the smallest December premium at .19 percent. The U.S. average premium is 6.44 percent.
“The national trend remains encouraging, but it is clear that rent relief is happening much slower in the Sun Belt states,” said Bennie Waller, Ph.D., of The University of Alabama’s Culverhouse College of Business. “A cursory look at our December results for both our premium/discount measure and year-over-year rent change clearly shows this slower correction.”
The index relies on leasing data from Zillow’s Observed Rental Index to determine existing rents and statistically model historical trends from 2014. It covers the entire rental stock of homes and apartments.
While the rent crisis is slowing, all three researchers are concerned about affordability.
“It is one thing for rents to slow, but another for rents to decline," Johnson said. "I don’t think we will see rents returning to 2019 levels anywhere in the country. So, affordability will be an issue until incomes rise closer to monthly rents."
-FAU-