Nationwide rents fell in October, indicating the rental market is softening as the Federal Reserve holds interest rates at their highest level in years.
A report from Rent.com released Monday found that rents fell by just over 1.6% from the month before. The national median rent price is now $1,978, the cheapest price recorded since April and the first time in five months that the median price has fallen below $2,000.
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This was the second month in a row of declining rent prices. September’s decrease was the first drop in rent prices in six months and marked the largest monthly decline since last year.
The decrease can be seen as welcome news for the economy because the Fed has been working hard to tamp down inflation with historic interest rate increases for more than a year. But even with the pressure of higher rates, rents surged over the summer.
Rising home prices and rents have hurt consumers who have already been shackled with soaring inflation.
“Price growth continues to be held down by below normal demand, increased inventory, and a return to seasonal price trends that typically begin dropping in the fall,” the report read. “October’s year-over-year change was the lowest price change since May, when yearly prices dropped just over half of one percent.”
Higher rents have fed into the surging inflation of the past two years. Notably, rent makes up about 7% of the consumer price index, the most-cited inflation gauge.
The most recent CPI data, released last week, showed that headline inflation fell to a 3.2% rate for the year ending in September. Annual inflation was at its lowest level in June, clocking in at 3%.
There are big regional differences when it comes to rent prices though.
Year-over-year rental price growth was recorded in the Midwest, although rents in that region remain the most affordable in the country, with the median price hovering at $1,430.
The Northeast also experienced year-over-year price growth, although rents there are the most expensive in the country, with a median price of $2,392.
“The West was the second most expensive region with a median price of $2,392. Prices dropped 1.5% on a yearly basis there, continuing a trend of year-over-year price declines that began in January 2023,” the report read.
In other housing news, mortgage rates, which pushed above the 8% mark briefly last month, have thrown the housing market into flux.
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New home sales rose 12.3% from August to September to a seasonally adjusted annual rate of 759,000, according to the U.S. Census Bureau. The number of new homes sold was the highest since February of last year. Sales in September were 22.9% higher than in September 2022.
Existing home sales last month slowed 2% to a seasonally adjusted annual rate of 3.96 million, the National Association of Realtors reported. That is the lowest level since 2010, showing the damage higher rates have done to housing affordability and demand.
