Relief in Sight: New Apartment Construction Expected to Ease Rental Prices

Rental prices across the country experienced a slight dip of less than half a percentage point in December, providing a glimmer of hope for cash-strapped renters. However, natural relief might be on the horizon, as a surge in new apartment construction is poised to boost inventory, according to Realtor.com chief economist Danielle Hale.

In a recent interview with Yahoo Finance Live, Hale expressed optimism about the increasing supply in the pipeline, stating, "There's a lot of supply in the pipeline, so we expect to see this softening trend continue. And that will give renters' incomes a chance to catch up."

A sustained decline in rental prices would benefit renters and align with the Federal Reserve's efforts to curb overall inflation by addressing shelter costs, including rental prices.

The influx of new apartments has already played a role in pushing down rents throughout 2023, with December marking the eighth consecutive month of year-over-year declines, according to Realtor.com data.

Despite the recent decline, renters still grapple with prices significantly higher than pre-pandemic. The median asking rent in December stood at $1,713, reflecting a 22% increase compared to the same month in 2019.

Regional variations continue to influence rental price dynamics, with the West and South experiencing a surplus of supply over demand, resulting in lower prices. In contrast, the Northeast and Midwest are witnessing steady rent growth due to higher demand than supply.

Danielle Hale emphasised the importance of location and advised renters to pay attention to local trends. Additionally, she highlighted the impact of tenant mobility, noting that those who have stayed in one place might experience slightly higher rent increases compared to other areas.

The surge in apartment construction comes amid a broader housing market grappling with supply shortages. In 2023, the multifamily market saw a 40-year high in completed units, totaling about 556,000 units, according to CoStar Group's January real estate report. This increased inventory has contributed to decelerating rent growth.

While the construction boom has provided more options for renters, CoStar predicts a slowdown in construction activity in 2024, with an estimated 444,000 units projected to be completed. As the rental market evolves, renters are advised to stay informed about local trends and explore available options to make informed decisions.