May Rent Report: Inflated Rent Is Poised for Decline

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Written by Anna Helhoski
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Edited by Rick VanderKnyff
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The most recent rent report is available here: June rent report: Rent growth is cooling, but prices remain high

The surging pandemic-fueled rental market has almost — but not quite — turned a corner.

In an interview the day before the latest inflation data was released, Jeff Tucker, senior economist at the real estate website Zillow, said he was optimistic that annual rent growth might have peaked in March. But by the next day, the data showed that hadn't happened yet.

The most recent Bureau of Labor Statistics’ consumer price index data, a proxy for inflation, shows shelter was the largest contributor to overall price increases in April. Over a 12-month period ending in April, the price index for shelter, which includes rent, was up 8.1%, according to the report released May 10. Rent increased 0.6% from March to April, compared with a 0.5% rise the previous month.

The data, while disappointing, doesn’t quite tell the whole story. That’s because CPI data reflects a lag in rent renewals and new leases. Most leases last a year, which means a renter’s costs stay the same all year long. It also means we won’t see 2022 rental housing reflected in the CPI for months to come.

There’s reason to be optimistic about future CPI data this year. Tucker says the growth in rent began decelerating in March 2022 and cooled significantly in late 2022. The give-or-take 12-month lag in the rental portion of the CPI could mean next month’s data might show a downturn.

Still, the most recent Zillow rental data, released May 5, paints what Tucker calls a fairly normal picture of the rental market at this time of year. The 0.6% rise in asking rents from March to April equals about $12 monthly. That’s a slightly smaller increase than the typical April increase of 0.7%, averaged from 2016 to 2019. Typical asking rents, nationally, are now $2,018, representing a 5.3% annual growth rate. The current annual rate is down about 12 percentage points from the peak growth rate of 16.9% in February 2022.

“It's a welcome signal that the rental market's not accelerating on some new runaway trajectory of rapidly rising rent,” Tucker says. “And instead, it's just kind of settling into a fairly normal seasonal pattern for the year.” He adds that April tends to be a “hot” time for rentals.

But today’s “fairly normal” comes on top of rent spikes during the first phase of the pandemic. If rents had continued growing at the steady pre-pandemic annual rate seen from 2015 to 2019, Tucker says, then rents would be a lot lower now.

“It's more expensive than it used to be and more expensive than someone would have reasonably expected it to be this spring if you'd asked them in February of 2020,” Tucker says. “The kind of good news that things are not on a new runaway growth trajectory is maybe more like a silver lining to a still fairly bleak picture for renters in terms of affordability.”

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What makes rent unaffordable?

Recent rental data from Zillow may show a downward trend in prices, but rent is still unaffordable in most cities in America.

The meaning of unaffordable may vary by household, but the general guideline is you should spend no more than 30% of your gross income on rent. Among the most unaffordable cities, median income earners in six places would be considered “severely rent burdened” by federal standards.

A monthly NerdWallet rent-to-income ratio analysis of 227 cities in the U.S. finds that, based on the most recent data for April, nearly 67% of rents on the market are equal to or above the recommended 30% ratio in March. The previous month’s report shows the ratio in March was 65%. February was the same.

That means, if you live in one of the cities where the rent-to-income is 30% or higher and you earn the median income or less, the typical rent in your area is likely moderately to severely burdensome. Market rent comes from Zillow, based on April data, and median household income used for this analysis is from 2021 U.S. Census Bureau data. The data doesn’t differentiate between incomes for residents who own rather than rent in those cities.

By federal standards, spending 30% to 49% of income on rent means a household is “moderately rent burdened,” and spending 50% or more means a household is “severely rent burdened,” according to the NYU Furman Center, which conducts research about housing and urban policy.

Among the 227 cities analyzed, seven have rent-to-income ratios that put renters with median incomes in the “severely rent burdened” category for April 2023:

  • Bridgeport, Connecticut: 70.71%.

  • Trenton, New Jersey: 70.55%.

  • Miami: 68.98%.

  • Santa Maria, California: 60.68%.

  • New York City: 56.99%.

  • Madera, California: 53.39%.

  • Los Angeles: 50.14%.

Renters with the greatest financial burden for housing tend to be seniors, low-income households, immigrants and racial or ethnic minorities, according to a 2015 Zillow analysis of U.S. Census Bureau data.

Here are the cities with the least and most affordable rental housing markets, according to April 2023 rental market data by Zillow.

Find out how affordable your city is and learn about more rental market trends.

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Methodology: Rent-to-income ratios by metro area

NerdWallet pulled the most recent available market rental data for 529 cities from the Zillow Observed Rent Index and matched it with the most recent available median household income data (2021) for cities by the U.S. Census Bureau. Certain cities identified in the Zillow Observed Rent Index weren't included in the U.S. Census Bureau list of median household incomes by city and thus weren't included in this analysis. A total of 227 cities were identified by both sets of data. Then, NerdWallet calculated the rent-to-income ratio using the following formula: Market rent/(median income/12 months).

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