The past several months have seen a deceleration in year-over-year multifamily rent growth. The same holds true in the single-family rental sector. According to CoreLogic’s Single-Family Rent Index (SFRI), the national rent growth for single-family rentals in July 2023 was 3.1%, year over year, representing a close to three-year low.

CoreLogic Chief Economist Selma Hepp told Connect CRE that the figure wasn’t a surprise, especially given the 30% increase in SFR rents since the pandemic’s onset. “Rent growth has now returned to its long-run, pre-pandemic trend, where it has stood since 2012,” she explained.

Driving Trends

Hepp said that lack of affordability is a primary driver behind the numbers, as well as households relocating to where they were before the pandemic and resulting shut-down. “Rent increases during the pandemic were strongest in regions that offered affordability, good weather and outdoor amenities,” she pointed out. These factors – plus the lure of remote working – encouraged households to temporarily move to areas like Miami, Las Vegas and Austin, TX.

In fact, Miami, Las Vegas and Austin are three Sun Belt cities that were hit with YoY negative rent growth in July at -0.6%, -1.0% and -0.5%, respectively.

St. Louis, meanwhile, showed the highest annual rent price increase at 7.3%.

The Geographic Differences

Hepp explained that rent growth in Sun Belt areas declined because “what goes up, must come down.” “Rents have increased by as much as 40% since early 2020 in many of these markets,” she pointed out.

Yet the opposite has been true in St. Louis and Chicago. “These two metros saw very little rent growth during the pandemic. As a result, these are some of the more affordable areas for renters,” Hepp said. Adding to the trend are strong job markets and return-to-office mandates in areas like Chicago and Boston, she added.

Adjustment, Not Downturn

The rent deceleration isn’t suggesting sector weakness so much as it’s underlying affordability. Hepp explained that markets experiencing 40% and 50% rent growth appreciation during the pandemic now have rents that” are adjusting to align with local incomes,” she commented.

She anticipates that SFR rent growth for the remainder of the year will likely continue decelerating but should return to its long-run average of 3% to 4% growth. Demand for single-family rents will continue to be strong, especially as the existing for-sale home inventory remains low and buying a house costs more than it did. “Single-family rentals also remain a viable option for households moving into new metros and still determining where they want to buy because they are unfamiliar with local neighborhoods,” Hepp added.