Nationwide rents rose in July, suggesting that the rental market is still putting upward pressure on overall inflation.
A new report from Rent.com released on Friday found that rent prices rose by less than half of a percentage point from the month before. The national median rent price is now $2,038, which is just $15 away from the data set’s record notched in August 2022.
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On an annual basis, rent prices in July rose by just 0.3%. The rising rent prices have surprised some economists who expected that the United States might have been in an economic slump, or even a recession, this summer in the wake of the Federal Reserve’s interest rate hikes.
The report found that if the rents continue to rise at the recent average rate, August will mark a new record for U.S. rent prices.
While rents rose last month, they didn’t do so at the same breakneck pace as in recent years after the Fed slashed interest rates to near zero during the pandemic. Since the start of the pandemic, the cost of renting exploded by 25%, tacking an average of $400 more per month onto the budgets of Americans already being buffeted by higher grocery and energy prices.
Higher rents have fed into the surging inflation of the past two years — rent makes up about 7% of the consumer price index.
“Broad trends across the industry including an influx of new inventory and demand below seasonal norms have worked to slow rent growth to below-normal rates,” the report said. “Prices even dipped negative year over year in May. But rents continue to be elevated in the longer term.”
States with the highest year-over-year rental price growth were in the South and Midwest, with the notable exception of New York, which saw rents grow by 13% over the past year. South Dakota saw the biggest annual increase, with rents increasing by a whopping 22.6%. Mississippi and Iowa saw prices balloon by 22.4% and 14.3%, respectively.
Still, just over a dozen states actually notched annual declines in rent prices. Average prices fell the fastest in Washington State with about a 7.7% annual decrease. Pennsylvania and Oregon both saw rents fall by more than 5% over the past year, according to the research.
The rental price growth comes as mortgage rates push to more than 20-year highs.
As of Thursday, the average rate on a 30-year fixed-rate mortgage was 7.09%, more than double the average before the Fed started raising interest rates, according to Freddie Mac. Mortgage rates are now higher than their peak in November when they topped out at 7.08%. The last time rates were this high was March 2002, according to the Freddie Mac data.
The Fed has been raising interest rates since March 2022 and has hiked its rate target (which is a different, very short-term rate) from near-zero all the way to 5.25% to 5.50%, the highest it has been in about two decades.
Still, although rates are very high, many economists and most investors don’t expect the central bank to raise rates again this year — good news for home buyers because if the Fed hikes again, it could push mortgage rates even higher.
An overwhelming 89% of investors think the Fed will hold rates steady at its next meeting in September, according to CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.
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Most investors and Fed watchers don’t expect the Fed to start cutting rates any time in the coming months.
Cutting the rate target could cause some mortgage relief, although most investors think the Fed will begin loosening its monetary policy sometime in early 2024.
