{"id":177188,"date":"2024-09-02T11:09:47","date_gmt":"2024-09-02T17:09:47","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=177188"},"modified":"2024-09-02T11:09:52","modified_gmt":"2024-09-02T17:09:52","slug":"rental-markets-where-prices-could-start-falling","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/rental-markets-where-prices-could-start-falling","title":{"rendered":"After Analyzing the Largest Rental Markets\u2014Here&#8217;s Where Prices Could Fall"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Vacancy rates <\/span><span data-preserver-spaces=\"true\">clearly<\/span><span data-preserver-spaces=\"true\"> have an impact on rents. <\/span><span data-preserver-spaces=\"true\">When <\/span><span data-preserver-spaces=\"true\">there are more rental units<\/span><span data-preserver-spaces=\"true\"> available in a given market, landlords have to compete to gain tenants, such as <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rental-market-report-july-2024\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">offering concessions<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><span data-preserver-spaces=\"true\"> Even if a landlord doesn\u2019t lower rents outright, offering just one month for free <\/span><span data-preserver-spaces=\"true\">lowers<\/span><span data-preserver-spaces=\"true\"> the effective rent for a given unit.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">So which markets are currently seeing a decline in effective rents, and which are <\/span><span data-preserver-spaces=\"true\">currently<\/span><span data-preserver-spaces=\"true\"> experiencing high vacancy? Finally, which markets are likely to see higher vacancy <\/span><span data-preserver-spaces=\"true\">in the future<\/span><span data-preserver-spaces=\"true\">, which could mean future rent declines?<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">30 Markets Where Rents Are Declining<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><a class=\"editor-rtfLink\" href=\"https:\/\/product.costar.com\/home\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">By using rental data from CoStar<\/span><\/a><span data-preserver-spaces=\"true\"> and only keeping markets with more than 25,000 rental units, we are able to track the cities with the lowest 12-month change in rents.<\/span><\/p>\n\n\n<p><iframe title=\"1-Year Change in Rents\" aria-label=\"Bar Chart\" id=\"datawrapper-chart-kK8Gs\" src=\"https:\/\/datawrapper.dwcdn.net\/kK8Gs\/3\/\" scrolling=\"no\" frameborder=\"0\" style=\"width: 0; min-width: 100% !important; border: none;\" height=\"1000\" data-external=\"1\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(a){if(void 0!==a.data[\"datawrapper-height\"]){var e=document.querySelectorAll(\"iframe\");for(var t in a.data[\"datawrapper-height\"])for(var r=0;r<e.length;r++)if(e[r].contentWindow===a.source){var i=a.data[\"datawrapper-height\"][t]+\"px\";e[r].style.height=i}}}))}();\n<\/script><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/markets?market=Cape%20Coral-Fort%20Myers%2C%20FL\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Fort Myers, Florida<\/span><\/a><span data-preserver-spaces=\"true\">; <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/markets?market=Austin-Round%20Rock-Georgetown%2C%20TX\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Austin, Texas<\/span><\/a><span data-preserver-spaces=\"true\">; and <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/markets?market=Raleigh-Cary%2C%20NC\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Raleigh, North Carolina<\/span><\/a><span data-preserver-spaces=\"true\">, have the highest declines in effective rent. Also, notice how most of the pandemic boomtowns have also seen a decrease, such as:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Phoenix, Arizona (-2.25%)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Tampa, Florida (-1.79%)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Charlotte, North Carolina (-1.72%)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Dallas, Texas (-1.43%)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Atlanta, Georgia (-1.36%)<\/span><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Now, let\u2019s look at vacancy rates.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Top 30 Markets with the Highest Vacancy Rates<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Vacancy rates are related to rent declines. So let\u2019s look at the markets with the highest vacancies, and plot their changes in rent beside them.<\/span><\/p>\n\n\n<p><iframe title=\"Highest Vacancy Rates\" aria-label=\"Table\" id=\"datawrapper-chart-qCptr\" src=\"https:\/\/datawrapper.dwcdn.net\/qCptr\/2\/\" scrolling=\"no\" frameborder=\"0\" style=\"width: 0; min-width: 100% !important; border: none;\" height=\"1266\" data-external=\"1\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(a){if(void 0!==a.data[\"datawrapper-height\"]){var e=document.querySelectorAll(\"iframe\");for(var t in a.data[\"datawrapper-height\"])for(var r=0;r<e.length;r++)if(e[r].contentWindow===a.source){var i=a.data[\"datawrapper-height\"][t]+\"px\";e[r].style.height=i}}}))}();\n<\/script><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">As you can see, just because a city is experiencing high <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/finding-multifamily-properties\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">multifamily<\/span><\/a><span data-preserver-spaces=\"true\"> vacancy doesn\u2019t mean it\u2019s also experiencing a decline in rents. <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/markets?market=Jackson%2C%20MS\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Jackson, Mississippi<\/span><\/a><span data-preserver-spaces=\"true\">; <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/markets?market=Oklahoma%20City%2C%20OK\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Oklahoma City<\/span><\/a><span data-preserver-spaces=\"true\">; and <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/markets?market=Houston-The%20Woodlands-Sugar%20Land%2C%20TX\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Houston<\/span><\/a><span data-preserver-spaces=\"true\"> are cases in point.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">However, what do those cities have in common? They are relatively affordable compared to their pandemic boomtown counterparts. Almost every other city on the list had small rent growth or <\/span><span data-preserver-spaces=\"true\">rent<\/span><span data-preserver-spaces=\"true\"> declines.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Top 30 Markets With the Most Rental Units Under Construction<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">And what do the cities with high vacancies and decreased rents have in common? New supply.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">As more rental units complete construction and come online, landlords will have greater competition to place tenants in their vacant properties, which can drive effective rents down. So let\u2019s<\/span> <span data-preserver-spaces=\"true\">take a look at the top 30 markets with the highest percent of new units currently under construction.<\/span><\/p>\n\n\n<p><iframe title=\"New Units Under Construction\" aria-label=\"Bar Chart\" id=\"datawrapper-chart-7OSUa\" src=\"https:\/\/datawrapper.dwcdn.net\/7OSUa\/3\/\" scrolling=\"no\" frameborder=\"0\" style=\"width: 0; min-width: 100% !important; border: none;\" height=\"858\" data-external=\"1\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(a){if(void 0!==a.data[\"datawrapper-height\"]){var e=document.querySelectorAll(\"iframe\");for(var t in a.data[\"datawrapper-height\"])for(var r=0;r<e.length;r++)if(e[r].contentWindow===a.source){var i=a.data[\"datawrapper-height\"][t]+\"px\";e[r].style.height=i}}}))}();\n<\/script><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Many of these markets were included<\/span> <span data-preserver-spaces=\"true\">on<\/span><span data-preserver-spaces=\"true\"> the charts displaying the cities with the highest rent decline and vacancy rates.<\/span><span data-preserver-spaces=\"true\"> It should be no surprise that new supply is related to these market variables.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Another thing to note: This chart details new units under construction. That means these new units aren\u2019t even on the market yet. Once the new units come online, these cities may continue to experience downward pressure on effective rents\u2014at least in the short term. (But not in the long term. Keep reading; I\u2019ll cover this at the end.)<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Is there a measurement for how strongly new rental unit construction is related to an increase or decrease in effective rents? It turns out there is.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">How Much Does New Supply Impact Future Rents?<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">In statistics, there is a measurement called the correlation coefficient. <\/span><span data-preserver-spaces=\"true\">This<\/span> <span data-preserver-spaces=\"true\">is a measure of<\/span><span data-preserver-spaces=\"true\"> the relationship between two variables, such as new construction and median rent. <\/span><span data-preserver-spaces=\"true\">Values closer to -1 indicate a negative relationship: <\/span><span data-preserver-spaces=\"true\">If construction rises,<\/span><span data-preserver-spaces=\"true\"> median rents may fall.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Values close to 0 indicate little to no relationship, and values closer to 1 indicate a positive relationship: Over a long <\/span><span data-preserver-spaces=\"true\">period of <\/span><span data-preserver-spaces=\"true\">time<\/span><span data-preserver-spaces=\"true\">,<\/span><span data-preserver-spaces=\"true\"> if construction rises, median rents may also <\/span><span data-preserver-spaces=\"true\">rise<\/span><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">I\u2019ve measured the correlation between new construction and median rent for all markets with more than 25,000 units (and leaves smaller markets out of this analysis). Notice how, when we measure from 2021 onward, we get a negative correlation for the top markets:<\/span><\/p>\n\n\n<p><iframe title=\"Correlation Between New Units and Median Rent, 2021-2024\" aria-label=\"Bar Chart\" id=\"datawrapper-chart-DeK7O\" src=\"https:\/\/datawrapper.dwcdn.net\/DeK7O\/4\/\" scrolling=\"no\" frameborder=\"0\" style=\"width: 0; min-width: 100% !important; border: none;\" height=\"1083\" data-external=\"1\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(a){if(void 0!==a.data[\"datawrapper-height\"]){var e=document.querySelectorAll(\"iframe\");for(var t in a.data[\"datawrapper-height\"])for(var r=0;r<e.length;r++)if(e[r].contentWindow===a.source){var i=a.data[\"datawrapper-height\"][t]+\"px\";e[r].style.height=i}}}))}();\n<\/script><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">The lower the correlation (the closer to -1 the values are), the more likely it is that additional new supply will put downward pressure on rents.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">For example, it\u2019s highly likely that if metros such as Phoenix, <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/markets?market=Minneapolis-St.%20Paul-Bloomington%2C%20MN-WI\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Minneapolis<\/span><\/a><span data-preserver-spaces=\"true\">, and <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/markets?market=Denver-Aurora-Lakewood%2C%20CO\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Denver<\/span><\/a><span data-preserver-spaces=\"true\"> continue delivering new supply, their effective median rent will <\/span><span data-preserver-spaces=\"true\">continue to<\/span><span data-preserver-spaces=\"true\"> decline.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">But how true is this in the long term? I decided to run the same analysis, but this time including data all the way from the beginning of the new millennium. Here is the correlation for each market from 2000-2024:<\/span><\/p>\n\n\n<p><iframe title=\"Correlation Between New Units and Median Rent, 2000-2024\" aria-label=\"Bar Chart\" id=\"datawrapper-chart-ravBG\" src=\"https:\/\/datawrapper.dwcdn.net\/ravBG\/3\/\" scrolling=\"no\" frameborder=\"0\" style=\"width: 0; min-width: 100% !important; border: none;\" height=\"863\" data-external=\"1\"><\/iframe><script type=\"text\/javascript\">!function(){\"use strict\";window.addEventListener(\"message\",(function(a){if(void 0!==a.data[\"datawrapper-height\"]){var e=document.querySelectorAll(\"iframe\");for(var t in a.data[\"datawrapper-height\"])for(var r=0;r<e.length;r++)if(e[r].contentWindow===a.source){var i=a.data[\"datawrapper-height\"][t]+\"px\";e[r].style.height=i}}}))}();\n<\/script><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Over the past 24 years, additional units under construction actually had a <\/span><em><span data-preserver-spaces=\"true\">positive <\/span><\/em><span data-preserver-spaces=\"true\">relationship with rents, which means if supply goes up over time, median rents are likely to go up as well.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">According to the data, it looks like the top five markets with the <\/span><span data-preserver-spaces=\"true\">strongest<\/span><span data-preserver-spaces=\"true\"> supply-to-rent growth relationship are:<\/span><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Springfield, Missouri<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Asheville, North Carolina<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Nashville, Tennessee<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Dallas, Texas<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Charlotte, North Carolina<\/span><\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Why is this the case? <\/span><span data-preserver-spaces=\"true\">My opinion is that <\/span><span data-preserver-spaces=\"true\">growth<\/span><span data-preserver-spaces=\"true\"> of supply<\/span><span data-preserver-spaces=\"true\"> indicates investors and builders expect demand to increase for a given market.<\/span><span data-preserver-spaces=\"true\"> If supply follows demand, new construction is likely a lagging indicator of city growth.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Cities with a strong long-term relationship between supply growth and rent increases may be excellent places to invest, even if they are experiencing rent declines in the short term.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What Does This All Mean for Real Estate Investors?<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">In the short term, a glut of new supply will undoubtedly put downward pressure on rents. If you\u2019re considering an investment in these cities, I wouldn\u2019t expect growth in rents anytime soon:<\/span><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Fort Myers, Florida<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Miami, Florida<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Sarasota, Florida<\/span><\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">The ultra-conservative investor may want to include rent declines in their near-term pro formas.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">However, as we saw, an increase in supply is also an optimistic sign that <\/span><span data-preserver-spaces=\"true\">there is more growth<\/span><span data-preserver-spaces=\"true\"> expected in the long term for these markets.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Please let me know if you disagree with anything in the article. I\u2019d be happy to have a discussion and possibly learn something from your point of view.<\/span><\/p>\n\n\n\n<div id=\"hero-block_9dd6f4394d78b8695c7ac8135c4d7131\" class=\"first:mt-0 hero-block py-4  alignfull   has-background has-slate-50-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-1\/2 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-slate-800-color has-text-color has-large-font-size wp-block-paragraph\" style=\"font-style:normal;font-weight:800\">Find the Hottest Markets of 2025!<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color wp-block-paragraph\" style=\"font-size:18px\">Effortlessly discover your next investment hotspot with the brand new BiggerPockets Market Finder, featuring detailed metrics and insights for all U.S. markets.<\/p>\n\n\n\n<div id=button-custom-event-block_fdd2991ac22199a712794af3a61d630b class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/markets\" x-on:click=\"window.analytics.track(&#039;Blog Block | Market Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/rental-markets-where-prices-could-start-falling&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Explore Markets<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/2 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/Market-Finder_Site-Module-1.png\" alt=\"\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Which markets are currently seeing a decline in effective rents, and which are currently experiencing high vacancy?<\/p>\n","protected":false},"author":613753,"featured_media":177191,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7382],"tags":[],"class_list":["post-177188","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-rental-prices"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/177188","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613753"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=177188"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/177188\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/177191"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=177188"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=177188"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=177188"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}