Recep-bg | E+ | Getty Images
After record high asking prices, rental costs are starting to fall.
“Rental markets are cooling, but in many places that doesn't mean they're falling. It means they’re growing more slowly,” said Whitney Airgood-Obrycki, a senior research fellow focusing on affordable housing at Harvard University’s Joint Center for Housing Studies.
Prices are starting to fall as supply increases vacancy and demand declines from record highs in 2022.
More from Personal Finance:
Here are the 10 hottest real estate markets in 2024
People move here
How to Use Rental Reporting Services to Boost Credit Scores
In December, the median asking rent price in the U.S. fell to $1,964, down 0.8% year-on-year. This is the third straight monthly decline, following a 2.1% decline in November and a 0.3% decline in October, according to real estate site Redfin. Rent price reflects the current cost of new leases in each period and data includes single-family homes, multi-family homes, condos/co-ops and townhomes.
More high-end devices could increase the “filter-down effect”.
The rent reductions occur indirectly. The new buildings that increase supply are usually higher-priced residential units that can achieve higher asking rents. said Susan M. Wachter, a professor of real estate and finance at the Wharton School of the University of Pennsylvania.
“It's a kind of 'filtering down effect' that will ultimately impact rents,” Wachter said.
It will take time for increased supply and curbed demand to significantly improve rent affordability at all income levels.
According to Airgood-Obrycki, most construction work is carried out in professionally managed apartment buildings, which are classified into categories A, B and C.
“New homes are almost always Class A,” she said. “What we’re adding is really at the high end.”
Airgood-Obrycki said increasing the supply of higher-rent Class A units often encourages tenants to upgrade to new units, leading to a leveling of prices in those units and an increase in vacancy in Class B and C units.
According to Redfin, more newly constructed and under-construction buildings are coming onto the market than a year ago. The number of completed apartments alone is close to its highest level in more than 30 years, while the number of apartments under construction is close to a new record.
These effects can already be observed in some areas. Prices are falling in the South and West regions due to more new construction, while prices in the Midwest and Northeast remain high due to lower availability, Redfin noted.
Don't miss these stories from CNBC PRO: