2024 Rental Market Forecast
January 18, 2024
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A Look Into The Rental Market In 2024
With the new year comes new questions for real estate investors. What will the next twelve months hold for the rental housing market?
Renters are eagerly anticipating relief from soaring rents, as affordability challenges reach new heights. Investors, on the other hand, are hopeful for a dip in mortgage rates, making the acquisition of new rental properties and revenue streams more accessible.
We don’t have a crystal ball, but certain trends are undeniably on the horizon for the rental market in 2024. Let’s delve into the possibilities for the upcoming year and explore a few of the real estate trends we’re looking out for in the months to come.
Where We’ve Been
You don’t need to be a keen observer to notice that the real estate market has been volatile the past few years. Real estate prices and interest rates surged in price in the late 2020, lasting until 2022. This was in part due to limited supply in an already undersupplied market. COVID-19 delays only worsened this undersupply.
Rents, too, experienced huge growth, up to 16% year over year in 2021. While great for real estate investors, rent increases have outpaced inflation and contributed to what is now identified as a major affordability crisis. Competitive markets, low supply, high mortgage rates, and high prices for homes that are on the market have all led to home ownership being out of reach for many.
Then in 2022, prices flattened out. New supply finally arrived, as construction resumed course in post-pandemic months. This stalled rent growth slightly, with the average household’s rent burden decreasing from $1,331 a month on rent in 2022 to $1,317 in 2023. But the affordability crisis persists. Rent is still high despite decreases in expensive rental markets like California, Texas, and New York. A significant portion of young people need to find ways to save on housing, such as living in rental properties with multiple roommates or their parents.
2023’s market was significantly cooler, with rent growth plunging and rent data showing year-over-year growth in the negative. Plenty of the nation’s largest cities saw negative growth, and many saw slower growth in the past year than in the previous two. As we move into 2024, will we see these trends continue?
Where We’re Going
Experts predict that indeed, some of these trends will continue in their trajectories. Buying a home is still more expensive than renting as mortgage rates remain elevated, so renters in 2024 will continue to rent despite high prices. But things aren’t looking too bad for them so far – Zumper predicts that rent will continue to fall for at least the first half of 2024, especially in Sun Belt cities like Austin and Phoenix. Additionally, renters will finally reap the benefits of resumed construction with new multifamily inventory arriving this year to ease rental market undersupply. Rising housing supply will motivate landlords to keep rents reasonable, as renters will now have more options for housing. However, construction financing is expected to fall in 2024 even as major multifamily projects are being completed, so it’s likely that the impact of new construction will look different in 2025 and beyond.
Inflation is also easing in 2024. If it continues to decline, housing demand will increase and rent prices will follow. That said, experts writing for BiggerPockets caution that a widespread substantial rent increase in 2024 will be unlikely. American renters are already bogged down with inflation, federal student loan payments, and general economic insecurity. Rent is already exceedingly high. Some cities (e.g., smaller cities outside the Sun Belt) may see rent prices increase more than others, which is why it’s important to be aware of the best markets to invest in for 2024. But overall, median rent prices are predicted to stay stable this year, meaning major rent hikes will have to wait until 2025.
Pressure on rent might yet be building, however. Americans still fear a U.S. and global recession due to increased interest rates, inflation, and exceptionally high oil prices, among other concerns. But if the economy remains stable in the coming year, we could see more individuals looking to rent independently rather than saving for a down payment. There are many factors at play in the rental market, some of which we’ll detail in the next section.
8 Rental Market Trends to Look Out for This Year
As we round out January and prepare for a market wake-up come spring, here are eight rental market trends to look out for.
- There will be a surge of new multifamily supply. In fact, 2024 will see the most new apartments in decades. Nearly one million new apartments are currently under construction, and 440,000 are expected to be completed this year. This uptick in supply is primarily contributed by Sun Belt markets like Austin, TX; Raleigh, NC; Nashville, TN; Jacksonville, FL; and Charlotte, NC. As supply becomes more available in these hot markets, rents may ease.
- Slow year-over-year rent growth will continue, but it will probably crawl upwards in areas that currently have negative growth. For the majority of the county, experts predict that rent growth will remain in single-digit territory. This trend might increase demand, but considering the new supply available, the rental vacancy rate may increase.
- There will be seasonal variation. There’s usually an increase in on-market properties in the spring, and real estate investors shouldn’t be surprised by it. Getting to know these seasonal patterns can help you make strategic decisions come the time to acquire a new property.
- Hybrid jobs lead to work-from-home necessities in many apartment complexes. Renters this year will continue to want in-home offices and adequate outdoor amenities to suit their WFH lifestyles established during pandemic-era restrictions.
- There will be more older renters in need of accessible housing. By 2030 (only a short six years from now!), all baby boomers will be 65 or older – and 25% of Americans will be at retirement age. Aging households are increasing substantially. There will be a need to reinforce accessible rent prices and living arrangements for these older renters. There will also be increased demand for affordable independent/senior living facilities.
- Gen Z renters have entered the market. Alongside their older counterparts, Generation Z will begin to occupy more and more rental units. This is a generation accustomed to digital integration and who expect digital amenities like automatic rent payments, online communication, and virtual application processes. The need to adapt to online rental marketplaces and embrace digital conveniences is paramount.
- There will be more long-term renters as mortgage rates stay high and buying a home remains stubbornly out of reach for most Americans. Investors are likewise deterred by high mortgage rates, and until supply increases, many real estate investors will hold on to their current portfolios instead of buying new properties.
- The affordability crisis will continue. In March of last year, more than five million U.S. households were behind on rent payments. Across the nation, tenants owed a total of almost $11 billion in rental debt, with the average family behind $2,094. This trend will likely continue into the new year as monthly rent bills remain the same, debt increases, and the affordable housing shortage continues.
Rental Housing Market Takeaways
The consensus among experts is that the rental market will continue softening. At and beyond the precipice of unaffordability, Americans will remain cautious and hopeful for a better economy and lower rents as supply increases. Investors should not fear—rent prices will either stay flat or decline only marginally, and growth might actually pick up in many smaller markets. As always, location will remain critical, as local trends could differ substantially from sweeping national generalizations.
In the ever-evolving landscape of the rental housing market, predicting the future accurately is never a guarantee. We’ve explored several potential trends, but the dynamic nature of real estate is such that unforeseen factors may come into play. Although uncertainty will always be part of the picture, we will continue to monitor developments and provide you with timely insights to help you navigate the year to come with confidence.