The US interest rate cut "roadblock" is back, will rent prices start rising again?

After several years of soaring, the rental market in the United States finally showed signs of slowing growth or even decline last year, giving renters some breathing room. However, in the second quarter of this year, the weak rental market trend seems to be fading, and the trend of rents stabilizing and rising is re-emerging.

Rental Demand is Rebounding

In areas like Casa in the South and the capital Washington D.C. in the East, rents have started to rise again this year. However, due to ample new housing supply in industrial areas in the South and rent declines in many cities, offsetting the rent increases in some cities in the West and East, the average rent for new leases nationwide over the past 12 months has remained relatively stable.

Overall, rental demand in the United States has clearly begun to rebound. Due to record high home prices and mortgage rates, many prospective homebuyers are forced to continue renting. According to media reports, some large apartment owners have raised renewal rents by about 4% or more, which is comparable to recent historical levels.

May CPI data shows that U.S. rent inflation remains at a high of 5.4%. Rent data was also the only "disappointing" data point in the CPI softening in May as recognized by Wall Street.

Rents May Continue to Exacerbate Inflation Pressure But Upside is Limited

Market reports show that in recent months, the number of tenants lost by apartment buildings is not as high as before, and vacant rental properties are being leased out quickly.

Considering the overall strong performance of the U.S. labor market, with steady growth in hourly wages and employment numbers, landlords still have room to continue raising rents, which could further increase inflation pressure in the United States.

However, the pressure of rent increases is mainly concentrated in mid-to-high-end apartments.

According to data from real estate data company CoStar, the average monthly rent difference between mid-range apartments and newer luxury apartments is about $570. CoStar states that since 2019, the rent increase rate for mid-range properties has been faster than that of low-end and high-end properties.

Currently, most analysts believe that there will not be a significant increase in rents nationwide this year. Commercial real estate brokerage firm Newmark predicts that by 2024, the asking rent for new leases across the U.S. may increase by 2%, far below the double-digit increases during the pandemic