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SALT LAKE CITY — In the U.S., rent prices are still growing — but they're slowing significantly as the nation's housing market dynamics shift dramatically amid higher interest rates.
To put that shift into perspective, rents these days are now growing half as fast as they were six months ago, a new Redfin report states.
In September, the median U.S. asking rent rose 9% year-over-year to just over $2,000 — but it also marked the slowest growth since August of last year and the first single-digit increase in a year.
September marked a 2.5% month-over-month price decline — and was the fourth straight month that saw annual rent growth decelerate, now climbing at half the pace it was six months ago, rising at 18% in March, according to Redfin.
It's a sign that the rental market is "coming back down to earth," said Taylor Marr, deputy chief economist for Redfin, "because high rents and economic uncertainty have put an end to the pandemic moving frenzy of 2020 and 2021."
The onset of the COVID-19 pandemic hurled the U.S. into a new era of remote work, which helped fuel what Marr called an "enormous surge in housing demand that would've otherwise been spread out over the coming years."
Now, gone are the days of low mortgage interest rates, at times below 3%, that many enjoyed during the pandemic housing frenzy. Today, as the Federal Reserve battles inflation, rates for the average 30-year fixed mortgage hover around 7%.
The narrowing path to homeownership has increased the demand for rental housing.
–Dejan Eskic, Kem C. Gardner Policy Institute
The high rates have tempered housing demand drastically. Even though they're also squeezing renters, pricing them out of the homebuying market, it is having an impact on rent prices as well.
Inventory is ticking up, which is also causing rent growth to slow, Marr said.
"Scores of apartments that have been under construction are now coming on the market, and more homeowners are choosing to become landlords instead of selling in order to hold on to their record-low mortgage rates."
What does this mean for rents heading into next year? Marr said Redfin analysts predict rent growth to continue to slow further into 2023 "as Americans continue to hunker down and more new rentals hit the market."
The question is how much rent price growth will slow — and if higher interest rates will have enough on demand to actually bring rent prices down rather than slow their growth.
Rents in Utah
In rapidly growing Utah, among the states with the largest housing building booms in 2021, demand for homes and rentals was high even before the pandemic accelerated demand. That building boom helped make a dent in the state's housing shortage — but it still stands at 31,000 units, according to a report commissioned by the Salt Lake Board of Realtors and written by James Wood, an Ivory-Boyer senior fellow at the University of Utah's Kem C. Gardner Policy Institute.
Utah's Wasatch Front has also seen a boom in apartments, with over 66,000 permitted between 2010 and 2022. Of those, 60.7% of growth occurred in Salt Lake County, 24.8% in Utah County, 9.7% in Davis County and 4.8% in Weber County, according to a report published last month by Dejan Eskic, senior research fellow at the Kem C. Gardner Policy Institute.
Currently, there are about 24,250 apartment units under construction across the Wasatch Front, according to Eskic's report. Salt Lake City leads the country in rental construction, Eskic wrote. Of the bulk under construction across the Wasatch Front, 13,957 are under construction in Salt Lake County.
The housing market frenzy certainly pressurized rental prices over the past two years, accelerating rental prices to record levels. Eskic has estimated 71% of Utah households had been priced out of the state's median-priced home by this spring, which crossed the $500,000 mark in February.
"The narrowing path to homeownership has increased the demand for rental housing," Eskic wrote, noting renters across the Wasatch Front saw as much rental price growth just in the past two years (between 2020 and 2022) as they did in the prior 10 years, between 2010 and 2020.
In Salt Lake County, the average rent grew from $1,213 in early 2020 to $1,534 in the second quarter of 2022, a $321 jump, according to Eskic's report.
The question is how much will rent price increases slow in a rapidly growing state like Utah, where rental vacancy rates are low. Will the apartment boom be enough to level out price increases — or even bring prices down?