As the cost of living continues to soar, renters are asking themselves, what’s driving rent increases? Rent. analyzed the data and trends to understand what apartment characteristics are propelling rent growth and what renters can expect as we head into a new year.
The cost of rent continues to fluctuate or even rise in several metro areas across the country. Despite national declines in September and October, rent levels increased again by 1.23 percent in November.
Renters may not be able to control the price of rent, but they can be informed about what’s causing this tumultuous rent growth and find ways to adjust accordingly. We’ll share an overview of rent trends we’ve seen and provide some insight as to why rent prices were trending down and then back up again.
Understanding national rent trends
Going back to economics 101, prices will increase or decrease based on supply and demand. While other factors contribute, this is one of the main reasons for price drops and spikes. Some fluctuations in the price of rent are normal and part of a healthy rental market, but it’s been an unprecedented year.
For the last two months, rent had been steadily declining but saw an uptick in November. While the median rent has increased, it is still lower than it was in August at its peak. As a renter, it can be stressful to see those prices trend up and to the right.
Right now, the national median rent price is $2,007. In the fall, the median rent price dipped below two thousand dollars a month but increased again by 1.23 percent in November to where it is now. The cost of rent is 7.45 percent higher this year compared to last year, as well. While prices are slightly up in general, take note that yearly increases are still in the single digits.
- Median rent in August 2022: $2,053
- Median rent in October 2022: $1,983
- Median rent in November 2022: $2,007
We’ve talked about the numbers and year-over-year changes, but let’s deep dive into the factors that are contributing to rent increases and decreases.
Reasons rent prices are rising
For two consecutive months — September and October — rent prices fell, making analysts and renters alike hopeful that prices would finally come down or plateau. But then November came and with it increases in rent. How come?
Inflation and cost of living
From eggs and milk to rent and utilities, prices are steep and renters are looking for ways to save money. Inflation is high and so the general cost of living has increased. On average, renters spend 30 percent of their income on housing, which is a significant chunk of change. And when everything is expensive, people may look to get a better deal on rent.
When people are looking for ways to save money on housing costs, they have a few options, which we’ll explore below.
Get a roommate
Our data shows that more people are searching for two- and three-bedroom apartments right now. This indicates that renters want a larger apartment so they can have roommates to help split the cost of rent, ultimately saving money on housing costs.
Rent instead of buy
Likewise, people who may have purchased a home in the past are now turning towards apartment rentals instead due to cost concerns. We’ve seen an uptick in families who are renting larger apartments because they’ve been priced out of the housing market.
Because the overall cost of living has increased, more people are looking to rent as a way to save money in their budget. More renters looking for apartments means more demand which leads to less supply and higher prices.
Limited apartment inventory
As we mentioned above, there are more people looking to rent apartments right now to help cut the cost of living. In any given city, there are only so many apartments. When the demand outpaces the supply, landlords can increase the cost of the rent. Limited apartment inventory may be one of the reasons that the rental market saw a slight uptick in rent costs in November.
High mortgage interest rates
Another contributing factor to the uptick in rent in November is rising interest costs for homebuyers. With mortgage rates just above 7 percent right now, many would-be homebuyers simply can’t afford to purchase a home anymore.
This adds a whole new demographic of renters to the playing field. People are looking to rent larger apartments or multi-family homes instead of buying a home.
We anticipate that when interest rates plateau or decrease, rent prices will fall with it.
Increased demand for the most affordable apartments
In the rental world, apartments are categorized into five categories or “quintiles.” Think of the quintiles like as buckets of apartments organized by price each containing 20 percent of Rent.’s inventory.
Quintiles 1 and 2 are the least expensive apartments. Quintiles 3 are mid-range-priced apartments, and quintiles 4 and 5 are the most expensive apartments, either high-end, luxury apartments, or larger units that can demand a higher price.
Quintile 1 apartments have increased the most in rent prices, which makes sense. More people want the least expensive housing option. Because of that, the price for quintiles 1 and 2 apartments grew quickly while quintiles 4 and 5 remained the same or even dropped. And then in November, quintiles 4 and 5 started to catch up on price gains, contributing to the 1.23 percent increase we saw month-over-month.
Why do rent prices decrease?
Now that we’ve highlighted some of the main reasons why rent increased month-over-month, let’s talk about factors that can cause rent to decrease.
Seasonality
Typically, rent is more expensive in the spring and summer compared to late fall and winter, which correlates with the moving season. More people move in the spring and summer, hence more people are looking for new places to rent. Fewer people move in late fall or winter so there are more apartments on the market.
Generally speaking, if you’re looking to get a deal on rent, try to sign a lease in the winter. Landlords will be eager to fill vacant apartments and you’ll likely catch a deal.
As we head into the depths of winter, we expect to see rent continue to decline along with typical seasonal trends.
All price levels will moderate
In November, we saw that quintile 5 apartments started to rise again, which led to higher rent prices overall. As prices for each quintile moderate, rent, in general, should stabilize.
What does the future of rent costs look like?
Rent. anticipates that rent prices will continue to moderate and even decrease through the winter, along with seasonal trends.
We may see another uptick in the spring and summer due to seasonality, so keep that in mind if you’re thinking about signing a new lease. We still have a ways to go before we get to year-over-year changes in line with pre-pandemic levels, but the trend we see is that rents will continue to stabilize, if at a higher price point. You can always use the Rent. rental calculator to determine how much you can afford in rent before you sign a lease.
