A surge of new apartments is hitting the market. Renters in these cities stand to benefit the most.

By Aarthi Swaminathan

The recent supply surge means apartments are sitting vacant for longer, which means renters are in a good position to ask for discounts.

As rental season heats up, landlords are having to work harder to fill apartments - giving renters in some parts of the U.S. an opportunity to push for better deals, according to a new report.

Property owners are having a harder time than in previous years filling their apartment rentals as a surge of new units hits the market, said the report from the real-estate brokerage Redfin (RDFN).

"Building owners are competing with one another for tenants," the company said.

Renters are facing a market that is largely cooling. After a period of steep post-pandemic price increases that led to housing costs hitting their highest level in over 30 years, rents have stabilized in the past year. In June, rents fell by 0.7% year over year, indicating the market is facing "ongoing sluggishness," according to a monthly report by Apartment List. The median rent across all types of apartments in the U.S. was $1,411.

Easing rents in certain markets are partly due to an increase in supply: A flood of new apartment rentals is coming online. About 90,300 new apartments were completed in the fourth quarter of last year, the second-highest number on record, Redfin said. The only time when completions were higher was in the second quarter of 2023.

To be sure, many renters continue to struggle to afford their housing costs. Half of renter households in 2022 were cost burdened, meaning they spent more than the recommended 30% of their income on housing and utilities, according to the most recent data available from Harvard University's Joint Center for Housing Studies.

Still, the recent supply surge means apartments are sitting vacant for longer. The pace of renting is the slowest on record, outside of the pandemic, Redfin said. Only 47% of newly constructed apartments built in the last quarter of 2024 were rented within three months, according to the Redfin report, which included data from 2012 to the present.

And the longer apartments go vacant, the better positioned renters are to ask for deals, Sheharyar Bokhari, a senior economist with Redfin, said in a statement.

"If you're looking for a rental and you've noticed a lot of new apartments popping up in your neighborhood, it may mean you have room to negotiate on price or ask for concessions like discounted parking or a free month's rent," he said.

In some markets, such as the Sun Belt, where there is a significant oversupply of apartment rentals, "developers are reporting that properties ... are seeing monthly lease signings at about half the historical rate," Jay Lybik, the national director of multifamily analytics at CoStar, told MarketWatch.

That's not the case with new apartments in other parts of the country, Lybik said.

Renters in the Sun Belt, particularly those in high-income households, could also see significant discounts in monthly rent in new leases signed this year, he added. "For those in more moderately priced units, however, the deals and discounts will be smaller due to limited supply pressures," Lybik said. "That being said, rent growth for moderately priced multifamily properties are the lowest they have been since the beginning of the pandemic."

Renters on the hunt are most likely to see relatively small units on the market. The number of studio apartments completed in the fourth quarter of 2023 was up 33% from the same period in 2022, Redfin said. On the other hand, the number of one-bedroom units completed over that time period only rose 22%, while the number of two-bedroom units rose 2.3%.

"Apartment construction in America tends to skew towards single people, with many builders deterred from focusing on families," Redfin said.

But any decline in rents will be moderate despite the surge in supply, Redfin said. With a massive backlog of apartments under construction, there is a "lid on how much rent prices can grow," the company said. At the same time, there is "demand from renters who can't afford to buy their own homes, [which] is keeping rents near their record high," the brokerage added.

Nonetheless, the slowdown in rents in June is a sign of things to come, Apartment List said. June is typically the period when the rental market heats up, "so sluggish growth this month indicates that the market is headed for another slow summer," the company said.

The sharpest declines in rents over the past year were in the Sun Belt. Metropolitan areas like Austin, Texas; Atlanta; and Raleigh, N.C., saw rents fall in June year over year due to a sharp increase in supply, according to the company's analysis.

In these markets, where rents are falling as supply outpaces demand, renters can expect to see more deals. "Newly completed projects are offering two to three months' free rent, depending on the type of unit, and then asking for the lease to be 13 or 14 months in length," CoStar's Lybik said.

Rents are rising quickly in the rest of the country. "These are markets where steady rental demand is not being matched by supply growth," Apartment List said. Rents rose the fastest, on an annual basis, in Honolulu; Louisville, Ky.; and Hartford, Conn.

How have high housing costs affected your financial decisions? MarketWatch would like to hear from readers about their experiences. You can write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more.

-Aarthi Swaminathan

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07-06-24 0734ET

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