The February 2025 Apartment List National Rent Report is out, and rents are down nationally for the sixth straight month. The national median monthly rent now stands at $1,370, down $3 per month compared to the previous month and $7 compared to January 2024. Why the drop?
After the post-pandemic exuberance of soaring rent increases that dovetailed with an apartment shortage and high inflation, the dust settled as more inventory came on the market—particularly in the Sunbelt. As of January, there was a 6.9% vacancy rate nationally—the highest in that month since 2017.
2024 saw the most new apartment completions since the mid-1980s. There are still 800,000 units in the construction pipeline, meaning the supply boom will continue well into 2025.
Large Cities See Rent Drops
The inventory increase is affecting large cities nationwide. On the micro level, 63 of the nation’s largest cities saw rents fall in January. However, the rent growth was positive year over year for 52 of the same cities. Why the discrepancy? Once units have been built and filled, cities eventually return to positive rent growth.
The January number could be an anomaly because it is generally a low rental month, with potential tenants often waiting until the spring and better weather to move. When the off-season rent drops are greater than the in-season increases, the overall numbers show a yearly drop. This has resulted in year-over-year rent growth of -0.5%.
Despite the fluctuations of the last few years, national median rents are $222 per month higher than January 2021, even though year-over-year rent growth has now been negative since June 2023.
Unsurprisingly, the cities with the greatest rent drops are those where rents increased dramatically post-pandemic, and there has been an influx of new apartments, such as Austin (-7.3% year over year), Denver (-4.5%), and Raleigh, North Carolina (-3.5%).
The Fed, Inflation, and Rents
As investors are all too aware, the Federal Reserve has monitored inflation closely to determine whether to cut interest rates. One of its key metrics is the Bureau of Labor Statistics’s Consumer Price Index (CPI), which is heavily influenced by housing and rent pricing changes and collectively called “shelter.”
While decreasing rents have helped to cool the CPI, home prices have remained elevated due to a lack of inventory. However, expect these numbers to fall as more homes come to market.
Time on Market
As you might surmise, time on market measures the time it takes for a vacant unit to get leased. It’s interesting to note that, despite fluctuations in rental pricing and the number of available apartments, there has not been a huge shift in the time it has taken to get them rented, though that could be changing with the deluge of new apartments coming to market.
In January, the median time to rent a vacant apartment nationally was 37 days. This means units are currently sitting vacant for three days longer than last year and 11 days longer than in January 2022, when the market was just beginning to loosen.
On a local level, in Austin—currently the nation’s softest rental market—units leased in January had been listed for a median of 46 days, nine days longer than the national average. This is not a huge differential.
Rent Growth Is Hot in the Midwest
Unlike much of the nation, rent growth is growing quickly in the Midwest due partly to affordability. Cleveland has seen the fastest rent growth, with a 5.3% increase over the past year, followed closely by other Midwest bastions, Kansas City, Detroit, and Grand Rapids, Michigan.
In pricier markets, rent growth has also increased due to the lack of supply and high demand. That’s true in Honolulu, San Jose, and Washington, DC. However, only Honolulu and Cleveland have eclipsed 5%.
High-End Apartments Have Higher Vacancies
According to the Wall Street Journal, the national vacancy rate for multifamily apartments reached 8% in the last quarter of 2024—higher than before the pandemic and higher than Apartment List National Rent Report data showed. Considering that the narrative for most of the post-pandemic years had been a lack of inventory, the vacancy stats appear misleading.
Part of the issue has been affordability. Developers have focused on constructing higher-end apartments, with an average monthly rent of $2,139. Their hands had been forced in many ways due to rising construction and land costs.
However, there was a disconnect when it came to affordability. Most tenants simply couldn’t afford rents over $2,100 per month. According to data analytics company CoStar, the vacancy rate for higher-end units in the U.S. is 11.4%, double the rate for more affordable units.
The Apartment List National Rent Report finds that the vacancy rate is nowhere more profound than in the Sunbelt, where developers have been building higher-end units en masse. The vacancy rate is less when construction isn’t as robust in cities such as Boston and Chicago.
Despite the large volume of apartments currently being constructed in New York City (150,000 are expected to be completed by 2028), many of these have yet to be filled; the vacancy rate is comparatively low—just 2.8%, making it one of the most in-demand rental markets in the country.
The Back-to-Work Effect
As companies and the federal government have mandated workers to return to the office, downtown areas have noticed demand for apartments increase, which plays into the hands of cities such as New York, Seattle, and San Francisco that suffered during the pandemic.
However, in the Sunbelt, where vast swathes of apartments are not dominated by high-density downtown areas, the vacancy numbers are higher. Most landlords feel that, eventually, those vacancies will fill up as migration to these areas still looks healthy while construction has slowed. Currently, renters in these areas have their pick of apartments, negotiating concessions with landlords.
Final Thoughts
The rental drop for the last six months is a natural reaction to new construction. It won’t last. However, falling rents and elevated interest rates mark an opportune time for investors to strike a deal and get into the market.
Competing against sparkling new apartments with a slew of amenities is tough for small landlords. Filling Sunbelt apartments comes down to one thing: price. Many tenants will be happy to pay less than the rent of high-end apartments for a quality remodeled rental without amenities.
In many cities, next to the shimmering glass, sparkling pools, and manicured lawns of new developments, there are still smaller multifamily units and single-family homes that provide an affordable alternative for tenants who don’t want to pay top-of-market rents to live in a high-rise apartment building.
For landlords in expensive cities, price is even more of a factor. The average cost for a one-bedroom apartment in New York City is currently $4,990/month, according to rent.com.
While salaries are also higher in New York City, it is still one of the most cost-burdened cities in the country. It’s also a tough place to be a landlord because of restrictive landlord/tenant laws.
Investors without deep pockets will have difficulty getting a foot in New York. However, those who can afford to park their money and buy cash will benefit from tremendous equity appreciation and continually increasing rents, especially as the back-to-work mandate has seen high-paying tech and finance jobs requiring workers to put in face time in the office.
