Mar-23 The U.S. Rental Market

07 Mar 2023


Actions by the Federal Reserve to slow the economy have led to the weekly 30-year fixed rate mortgage (FRM)​​ on Mar 2, 2022,​​ to end at​​ 6.65%. This is an increase of 358 bps since the end of Nov-21 when it was 3.07%. Concurrently, the year-over-year home price gains through Jan-23 for the 20 CBSAs tracked by this report (the CHTR 20-city index) have slowed down​​ by 35 bps to​​ 6.49%.​​ 


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Moreover, existing home sales have fallen for twelve straight months in a row, and reported that home values in Jan-23 tumbled (MOM), in several formerly hot markets, most noticeably, Las Vegas (-1.3%), Phoenix (-1.3%), San Francisco (-1.0%), and Los Angeles, CA (-0.9%). Table 1 shows the deceleration of housing.


How long does it take for home price declines to filter into the rental market. First it must be pointed out that Table 1 highlights the strong seasonal slowdown in month-over-month (MOM) rent growth (RRA3bd,​​ column 6). This rental seasonality​​ (declines in the winter)​​ is not concurrent with housing seasonality​​ (declines in the fall).​​ There is evidence that growth in rents on SFR detached properties appears to be a leading indicator of CPI-Shelter. The year-over-year growth in rents for 3-bedroom detached properties is 4.70% which suggests the shelter cost of CPI is not going to fall below 4.00 percent anytime soon.​​ 


We also see in column 9 that YOY growth in rental rates on apartments in multi-unit structures is still positive but now growing at a slower rate (5.42% vs 5.84% last month). To get a micro-sense of how rents are changing with prices, Chart 1 shows both the​​ month-over-month​​ increases in home prices (HPA) and in rental rates (RRA) as of Jan-23 for our 20 CBSAs.


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The chart shows that RRA loosely​​ declines with​​ HPA as we move to the​​ left.​​ The​​ red​​ bars show the​​ significant declines in rental rates for 3-bedroom property and the much slower decline for rents​​ apartments in multi-unit buildings.


In the face of higher mortgage rates, there are some reasons for the​​ still​​ amazingly strong home price growth we see in Table 1, but which now are beginning to reverse themselves:

  • Mortgage rates are still historically low

  • People rushing to buy homes before rates go up even more

  • Migration out of high-priced California

  • Migration out of Central and South America to Miami

  • The job market remains​​ very​​ strong​​ 

  • Millennials moving into their childbearing age and trying to get out of their parent’s houses.

Because vacancy rates are low, the​​ declines​​ in rents for​​ 3 bedroom detached properties and​​ apartments​​ that​​ we see in Table 1 and Chart 1 are​​ probably due to seasonality.​​ Rents are likely to stay high​​ because:

  • Vacancy rates are low, despite the increased purchases of homes.

  • Landlords have pricing power.

  • Apartment renters might have low incomes​​ and weak credit and may have no other choices but to pay higher rents​​ 


Individual CBSA rental markets:

Although declining,​​ these​​ still high​​ rental prices may continue. It depends, in part, whether renters can afford these increases​​ and on the ability of landlords to increase rents in order to offset rising purchases prices for homes.​​ The rule of thumb is that a household should allocate about 30 percent of income to shelter. To​​ partially​​ answer this question, we show​​ four​​ additional charts below. The first (Chart 2) is for three-bedroom detached properties and the second (Chart 3) is data for apartment rental (all unit sizes) in multi-unit buildings.​​ 

Chart 2 shows that in major CBSAs, like Los Angeles, CA, New York, NY , Miami, FL and San Francisco, CA renters are willing to allocate more than 60 percent of their income to renting a three-bedroom property.​​ 








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