Zillow's latest Rental Index (ZORI) shows that between June and July, the rent in the U.S. housing market rose by 10% or increased by 0.5%, pushing the national average rent to $2,062, which is 3.6% higher than the same period last year. This data indicates that, following the record growth rate of 16.2% in February last year, the annual growth rate of rent has been slowing down for 17 consecutive months.
Although the 0.5% rent increase in July is significantly lower than the 1.0% in July last year and 2.0% in July 2021, it's unclear whether the first appearance of an above-average increase after eight months of lower or average growth is due to seasonal factors or marks the beginning of a rent rise, until more data is available.
Data shows that in the first seven months of this year, the cumulative increase in rent was 2.9%, much lower than the historical average cumulative increase of 3.9% as of July 2020. Additionally, in June, the number of under-construction multi-family residences, after seasonal adjustments, reached a record 977,000 units. As these apartments, primarily intended for rent, enter the market over the next one to two years, they will increase the supply in the housing market and curb the growth of existing rents. Meanwhile, the vacancy rate for rental housing has also begun to rise from near 30-year lows.
However, it is important to note that the rental market is likely to experience high demand for a long time to come. On one hand, high inflationary pressures in the United States continue to squeeze large expenses for consumers and support the Federal Reserve in maintaining a tighter policy for a longer period. On the other hand, higher mortgage costs have curbed home sales, with data showing that annualized sales of existing homes and new single-family homes in the second quarter were just 5 million units.
In June, the cities among the 50 largest in the United States with the highest rent increases were Farg, Virginia Beach, Washington D.C., Birmingham, and New York City, all at 0.8%. The slowest rent increases were seen in Atlanta (no change), Memphis (0.1%), Riverside (0.1%), Austin (0.1%), and San Antonio (0.1%). Whereas Hartford (7.0%), Providence (6.5%), Boston (6.5%), Chicago (6.0%), and St. Louis (5.7%) had the fastest annual rent growth.
Impacted by the tech industry's hiring slowdown and remote work, areas with the weakest year-over-year rent growth are mainly in the West. Compared to the same period last year, Las Vegas decreased by 2.3%, Austin by 1.8%. Meanwhile, Phoenix, Seattle, and San Francisco saw rent increases of 0.1%, 0.5%, and 0.6%, respectively.
According to Zillow's data, the most expensive cities for rent include New York City at $3,445, San Jose at $3,425, San Diego at $3,205, San Francisco at $3,188, and Boston at $3,024, with the New York metropolitan area ranking first in Zillow's data for the first time. Additionally, according to data from Zillow's New York brand StreetEasy, the median rent in New York reached a new historical high of $3,799 in July.
The latest CPI data from the U.S. Department of Labor on Thursday shows that although the annual growth rate of the CPI's rent component decreased from 8.66% in May to 8.33% in June, with the monthly growth rate remaining around 5.8%, the June growth rate of the CPI's other components dropped from last year's 10.8% to below 1%, indicating that housing costs still provide strong support to the overall CPI.
