Tug of War: National Rent Growth Stabilizes as U.S. Markets Head in Different Directions

The first half of 2019 was marked by increasing rents thanks to strong growth in Sun Belt markets including Las Vegas, Phoenix and Atlanta. But that picture began to shift in the third quarter, with rent appreciation barely budging from Q2 as growth in top markets faded and other markets began to heat up.

Observers of the rental market should stay tuned to developments as diverging markets wage a tug of war to determine the ultimate direction of future U.S. rent appreciation. Appreciation rarely stays flat for long in housing, and there is no reason to think the current respite will continue.

Here’s how the tug of war played out in the third quarter:

With the exception of Cincinnati, Sun Belt markets still dominate the list of 10 fastest-growing markets, but the trajectories of many of these markets have changed. Most notably, appreciation in Las Vegas – the fastest growing market after Phoenix – appeared to hit peak rent appreciation earlier this year and has been on a steady decline since May. Sacramento, the third-fastest growing market, posted slower growth over the past quarter after hovering around 5.9% annual appreciation for much of 2019. Cincinnati and Phoenix are the only markets in the top 10 that currently have increasing appreciation.

If these slowing trends hold, the top 10 is likely to change in coming months as appreciation in the current top-performing markets continues to fade. Notably, Seattle – currently the 12th fastest-growing market – is looking at a likely return to the top 10, as appreciation has consistently risen since last November following a major slowdown from a period of very rapid growth in the summer of 2016. Aiding in Seattle’s return to the top are the noticeable slowdowns in Tampa Bay and Jacksonville, Fla., which rank 9th and 11th respectively. Meanwhile, tenth-place Salt Lake City has been slowing down since April, albeit more gradually than the two Florida markets.

Houston continues to be the slowest-moving market by a good margin, with just 1.2% annual appreciation this quarter, though the slowdown appears to be tapering off. The next slowest-growing markets­ – New Orleans, Baltimore and New York – sport annual rent appreciation just at or below 2%, and have been heating up.

Miami, like the other major Florida markets, has been experiencing a slowdown in rent growth and could soon become one of the 10 slowest-moving markets in the country. Miami is already the 11th slowest market, and its recent decline in appreciation contrasts with Oklahoma City and Virginia Beach, which have been on a significant upswing and are likely to move up the list and leave Miami behind.

Two things to consider going forward are historically low mortgage rates, which have declined greatly since last December.  Low mortgage rates may incent some renters to enter the for-sale market, which combined with seasonal effects from the typically slower winter season may put more downward pressure on rents.