Rental Market Bust Just Around the Corner, Experts Warn

According to a number of Real Estate experts, the rental market in the US is on the brink of collapsing. Last month, rental prices finally dropped to pre-pandemic levels. For millions of Americans, the pandemic had led to an increase in housing costs, making it difficult to keep up. The CEO and founder of Reventure Consulting, Nick Gerli, tweeted a series of comments in which he predicted a downturn in the rental market.

One of the main reasons for the potential collapse is the increase of rental properties due to a surge in construction, therefore resulting in a higher supply for renters. The housing shortages that occurred as a result of the pandemic, combined with the lack of affordable homes, led many Americans into the rental market, resulting in a housing boom with multi-family units.

Meanwhile, RealPage Market Analytics estimates that approximately 917,000 apartments will be developed in 2022, which will increase the existing apartment base by 4.9%. This construction boom is the largest since the early 1970s, making it difficult for landlords to keep their rent prices competitive in order to attract new tenants.

According to the American Housing Survey, approximately 50% of rental households were spending at least $1,000 or more monthly on rent in 2021. Monthly payments for apartments slightly rose in March, up by only 2.6% from the same period last year. Apartment List reported that this was the smallest annual increase since April 2021.

Increasing Evictions

The recent surge in available apartments may further expose the market to the vulnerability of a real estate bubble according to Gerli, because the increase in rental properties leads to price falls nationwide. Evictions have also contributed to the increase in rental vacancy rates since the end of COVID monetary aid packages has resulted in the forced eviction of renters who were unable to pay their monthly rent.

Moody’s Analytics predicts that the rental market growth will taper off in the second half of 2023 as home financing costs decline, resulting in less pressure on the mortgage market. Gerli commented that the shifts in the rental market are taking place alongside a major decline in demand for single-family homes, as the number of mortgage applications in recent months has been the lowest it has been in 28 years. In assessing the cost to buy versus the cost to rent, Gerli found that when it becomes more expensive to buy than to rent, metropolitan regions become more exposed to a housing market crash.

Geri believes that ultimately, the trends in the rental market suggest that a broader housing market crash is looming, based on factors such as a backlog of construction, increasing vacancy rates, and lower rents, and an increased gap between buying and rent costs.