Easing rents could mean fewer buyers this spring
With affordability improving for apartment dwellers — and mortgage rates and home prices still high — renters may continue to delay home purchases.
It's getting easier to find an affordable apartment — but harder to rent a single-family home. What does that mean for renters who may be considering a home purchase this spring?
As multifamily rents ease, some potential buyers may decide they're better off staying put for now. New reports from Zillow, Redfin and Realtor.com all found that rent prices softened at the end of 2024 as a wave of new apartment construction completions boosted supply across the U.S.
Affordability improves for some: To afford a typical apartment, which goes for $1,592/month, according to Redfin, a renter would need an annual household income of $63,680 — the lowest amount in three years (but still up significantly compared to 2019 and 2020, when renters only needed to earn around $54,000).
December was the 17th consecutive month of year-over-year rent declines for 0-2 bedroom properties in the 50 largest metro areas, according to Realtor.com's latest rental market report. It calculated a higher median asking rent than Redfin, putting the figure at $1,695 a month, but noted that it had dipped below $1,700 for the first time since April 2022.
Single-family rents tell another story: Zillow found that in December, single-family rents were 20% higher than multifamily rents, the largest disparity between the two since the company began tracking the data in 2018.
"As we enter 2025, it's fair to say that concessions in the multifamily market are here to stay," said Sklar Olsen, chief economist at Zillow. "Whether single-family rent growth will continue to rise at a rapid pace ultimately depends on where mortgage rates go, but with limited construction of single-family rentals on the horizon, this segment of the market will likely stay tight."
Delaying homeownership: With wages growing and apartment rents remaining mostly flat, fewer people may decide to enter the homebuying market this year, said Redfin Senior Economist Sheharyar Bokhari.
"The affordability gap between renting and buying is likely to widen further in 2025, as home prices rise and mortgage rates remain high. That means potential homebuyers — especially from younger generations — may decide to continue renting for longer, as it's the only affordable option," Bokhari said.
But if single-family rent prices keep going up, those renters could decide that buying is a better option. Since the beginning of the pandemic, single-family rents have increased by a staggering 40.6%, Olsen noted.
Where rents are lowest (and highest): Of the 10 most affordable cities for renters, Texas metros took the top three spots. Austin led the way, with the typical renter earning nearly $70,000, or 25% more than the $55,760 needed to afford the area's median rent price of just under $1,400.
Houston and Dallas came in at No. 1 and No. 2. The Texas cities were the only three where renter incomes exceeded the minimum affordability requirement by double-digit percentages.
The East Coast is proving to be a more challenging market, with renter incomes falling well short of what's needed to afford a home in some cities. The gaps were highest in Providence, Rhode Island, (-41.25% shortfall), Miami (-39.78%) and New York (-36.39).