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Rents Falling Faster than "Seasonality Alone"


by Calculated Risk on 12/01/2022 12:16:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Rents Falling Faster than “Seasonality Alone”

A brief excerpt:

Here is a graph of the year-over-year (YoY) change for these measures since January 2015. All of these measures are through October 2022 (Apartment List through November 2022).

Note that new lease measures (Zillow, Apartment List) dipped early in the pandemic, whereas the BLS measures were steady. Then new leases took off, and the BLS measures are picking up.

The Zillow measure is up 9.6% YoY in October, down from 10.8% YoY in September. This is down from a peak of 17.1% YoY in February.

The ApartmentList measure is up 4.5% YoY as of November, down from 5.6% in October. This is down from the peak of 18.1% YoY last December.

Rents are still increasing YoY, and we should expect this to continue to spill over into measures of inflation. The Owners’ Equivalent Rent (OER) was up 6.9% YoY in October, from 6.7% YoY in September – and will likely increase further in the coming months even as rents slow sharply.

My suspicion is rent increases will slow further over the coming months as the pace of household formation slows, and more supply comes on the market. Housing economist Tom Lawler recently wrote: “An actual decline in rents next year would be a reasonable base case”. This is important for monetary policy.

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