Based on the cooled rental market of previous years, here are 7 predictions for where rentals will go in 2024 from Apartment List‘s economists.
- Renters will have more options and better chances to negotiate prices and lease terms in 2024, which will be the strongest year for apartment construction in decades.
- According to expectations, year-over-year rent growth will crawl out of negative territory next year, but it will not rise above the low single digits.
- In spite of modest interest rate declines, home prices will remain prohibitively high and long-term renters will continue to increase.
For 2024, here are the key highlights in the rental market:
1 – New apartments will be built in greater numbers than ever before in 2024
In general, multifamily supply growth is expected to continue through 2024, according to data from the Census Bureau. In 2023, there were one million new apartments under construction, and completions are expected to peak in 2024. New multifamily construction is expected to be strong in 2024 due to the high number of units under construction.
2 – Rents will grow at a low rate of single digits in 2024
Compared to previous estimates (going back to 2017), 2023 is set to have the second slowest rent growth. Despite an anticipated bounce back in demand, it is expected to remain soft through 2024. Despite the relatively strong labor market, there may be some pent-up demand for new households. It is apparent, however, that Americans continue to have a lack of confidence in the economy as affordability remains a major concern. Despite the most optimistic scenarios, demand is unlikely to outstrip new supply in 2024, likely resulting in a modest rise in our vacancy index. Despite rising out of negative territory early next year, rent growth will not exceed low single digits in 2024.
3- Rent vs. buy math will change, leading to more long-term renters
Renters are staying in their homes longer than they might have in the past. It may make more sense to rent now even if you are able to afford to buy in today’s market. In spite of the fact that most Americans still aspire to own their own homes, more people are renting later in life, and this trend is likely to continue. For-sale market dynamics are expected to remain largely unchanged next year, even as mortgage rates ease modestly. In the future, many people will consider renting to be a more practical housing option as the paths to homeownership fade.
4- Office jobs will shift toward hybrid work
Despite the focus on return-to-office plans in 2023, the pendulum will never swing completely back to pre-pandemic levels. The latest estimates indicate that 28 percent of all work days are still completed from home, and the number appears to be stabilizing at that level. The percentage of American workers with remote work flexibility currently stands at 42 percent, and hybrid arrangements are more prevalent than fully remote ones. Increasingly flexible workers need spaces and amenities that allow them to blend work and home life, as data shows.
5- Rents won’t necessarily rise in Sun Belt markets because of a higher number of renters in the rental market
Over the past few years, the Sun Belt has experienced the fastest population growth in the country. While Sun Belt markets have in many instances been among the most accommodating of growth, new housing developments have been permitted to meet growing demand. As a result of multifamily development in the Sun Belt, fast-growing markets will continue to attract renters.
6- Housing will be a major issue in the presidential election as the economy takes center stage
We are entering a presidential election year when questions about the economy have become more complex. Economic sentiment surveys continue to show low levels of confidence and satisfaction with the economy in spite of the fact that most of the key economic indicators are quite strong. A waning housing affordability is likely to be part of the reason for some of this disconnect. Both candidates on both sides of the aisle will need to articulate housing plans as the election cycle ramps up and housing becomes a more pressing concern. The political discourse on housing could shift to the forefront in 2024.
7- Renters will use artificial intelligence more often
Renters can expect a new wave of AI-powered tools in 2024. In the near future, renters will likely use artificial intelligence to search for apartments, compare them, and coordinate their actions. While these advancements will take time to change macro market dynamics, the next high-demand rental market cycle may look quite different with new power in renter’s hands. Renters and property managers can capitalize on this upcoming technological frontier as adoption of AI-enabled rental search tools accelerates into 2024.
As with every new year, 2024 will be filled with surprises no model can predict. Our goal is to prepare you by forewarning you about what’s upcoming – from new supply waves to persistent homeownership headwinds that will bolster rental demand.