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Annual rent growth continues to slow — so why do prices still feel so high?

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Rent growth in January experienced its smallest annual change in nearly two years, a sharp departure from the double-digit increases seen through much of 2022 and a continuation of the market’s cooling across much of the country, according to a new report from Rent, a listing portal.

So why do prices still feel so high for many tenants?

“At the national level, rents continue to moderate. They were up about 2.37% between January of 2022 and January of 2023 — and that’s the smallest yearly change we’ve seen in 20 months,” Jon Leckie, a researcher for Rent, told MarketWatch. “It’s also the fifth consecutive month of single-digit increases.”

But January’s median rental price of $1,942 and all those slower-growth months followed nearly a year of double-digit annual rent increases, with annual growth at one point hitting 17.5% in March, according to Rent’s research. The median rental price peaked at $2,053 last August, Rent said.

Median rent may have fallen by more than $100 since then, due in part to more vacancies and inventory, but prices are nonetheless far higher than the median rent level of $1,640 seen in January 2021, Leckie said.

“Over two years we’ve added about $302 to the monthly price, and that’s 18.41% growth over two years,” Leckie said. “You’re still up 9.2% on a yearly basis.”

Normally, yearly increases would be closer to 3%, Leckie said, meaning $1,739 would have been the typical rent level for January 2023 otherwise.

“We should’ve seen about a $100 increase in rents over the past two years,” Leckie said. “Instead, we saw a $300 increase.”

That’s already well reflected in inflation data: Consumer prices rose 0.5% in January, largely driven by a rise in shelter costs, the Labor Department said earlier this week. Rents were up 0.7% in January from the previous month, and up 8.6% from January 2022.

However, rental data within the consumer-price index lags behind the market by about 12 months. Instead — at least, according to Rent’s analysis for January 2023 — rents actually declined almost 2% from December to January, in line with the other monthly decreases seen in four of the past five months, the Rent report said.

But that doesn’t mean renters can expect a return to pre-pandemic prices.

“We’ve reached a new floor from which rents can grow,” Leckie said.


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