Update on the Rental Bubbles & Crashes in US Cities
Update on the Rental Bubbles & Crashes in US Cities by Wolf Richter – Wolf Street
Asking rents spiral down in Chicago & Honolulu, come unglued in Washington DC, drift lower in New York City, but see double-digit surges in Southern California and many less expensive markets.
Let’s start with Chicago and then swing to Southern California to get a flair for the drama on the ground that gets averaged out in the national figures.
Chicago rents peaked in the fall of 2015 and have since spiraled lower. In July, the median 1-BR asking rent dropped 5% from a year ago, to $1,510, and is down 26% from the peak in October 2015. For a 2-BR, median asking rent plunged 13.6% year-over-year and is down 30% from the peak.
Like other cities, Chicago has an apartment construction boom. In the Chicago-Naperville-Elgin metro area, 10,700 apartments are expected to be delivered in 2018, for a population of 9.5 million. And this is a problem – because Chicago’s population has dropped by 27,000 people since its peak in 2014. In late 2015, asking rents peaked. As new apartments came on the market and as more people left, demand withered and rent began to spiral down.
But rents in Southern California are soaring. In Los Angeles, the median 1-BR asking rent, after setting a record in June, ticked down in July to $2,330. The median 2-BR asking rent also set a record in June and ticked down in July to $3,210 – the second most expensive 2-BR asking rent in the country, after San Francisco. Rents for 1-BR and 2-BR apartments in San Diego soared 15.6% and 8.4% in July compared to a year ago. In Santa Ana, Anaheim, and Long Beach, a similar scenario is playing out.
But on a nationwide basis, these dramatic differences between individual metros get averaged-out: Median asking rent for 1-BR apartments across the US rose 2.7% in July compared to a year ago, to $1,208. And for a 2-BR, it rose 2.7% to $1,446.
These are median asking rents – “median” means half are higher and half are lower – in multifamily apartment buildings, including new construction, as they appeared in active listings as apartments for rent in cities across the US. The data, collected and released by Zumper, reflects the current market as landlords are trying to price it. The data in Zumper’s National Rent Reportdoes not track the actual rents agreed to between landlord and tenant and does not include “concessions,” such as “1 month free” or “2 months free.” Single-family houses for rent are also not included.
The table below shows the 17 of the 100 most expensive major rental markets in the US. The shaded area shows peak rents and the movements since then. The black “0%” in the shaded area means that these markets set new records in July. If rents are down by a few bucks from the peak a few months ago, it doesn’t yet mean that the market has turned – a turning point would require more prolonged data. For the first time, the list includes Denver:
Washington DC rents have suddenly come under pressure: 1-BR rents in July are down 8.1% from their peak just last December. And 2-BR rents have plunged 18.2% from the peak in June 2017. That was fast.