While inflation is slowing in the United States, the impact is not the same in all markets in the country or across North America; the inflation rate is still high in Canada, for example. The lower inflation rate in the US also doesn’t guarantee easy-to-find rental housing in more competitive markets, but overall, price pressures are easing in many major metros. Below are your third quarter rental market trends in the US, Canada, and Mexico. The US update is broken down into 4 points to further explain the trends.
US - Inflation Cooling Down
Across the US, the increase in rent from June 2022 to June 2023 was approximately 5%, compared to an increase of 16.9% from mid-2021 to mid-2022. As always, for relocation markets, the ‘national average’ may not apply. Relocating employees and global assignees tend to settle in more expensive, more popular areas, with greater competition and higher rents. Still, there is no mistaking the general improvement in cost experience and availability versus a year ago. The changes in the price of a 1-bedroom apartment in many popular markets have been at or below the benchmark of 5%, with some outliers in areas such as Cambridge (near Boston) and Northern New Jersey, across the river from New York City.
Return to Office is Real
72% of US employers have a hybrid or full return-to-office policy in place. “Knowledge worker” markets like Silicon Valley, San Francisco, Boston, NYC, and Seattle are seeing the impact in terms of tightened availability in preferred and commutable locations. Rental rates have not yet soared again in all these markets, but the trend is building.
Interest Rates: The Good and Bad News
The good news is inflation is cooling across the US in most key cost indicators. However, higher mortgage interest rates of around 7% are a deterrent both to new home buyers for affordability and to potential home sellers who do not want to give up their prized 3% mortgages. As a result, single-family home inventory is at an all-time low. Renters who would like to buy are not able to, putting pressure on available rental properties in some markets.
Apartment Supply is Getting Stronger
Multi-Family Unit supply is through the roof. Per one industry source, nearly 1 million units will enter the US market in 2023. In some ‘pandemic flight’ markets like Las Vegas and Phoenix, there is now an oversupply, and even in markets like Austin, TX and suburban Dallas, rents are now headed lower. The surge in apartment supply is not being matched in single-family homes, however, where supply continues to be very limited.
Room for Negotiation?
Zillow Rental Research noted that 27% of their rental listings in the month of May included some concessions/incentives in the form of reduced initial rent or waived rental payments. This trend is by no means national or even universal in a single market but is an indicator that some developers with excess inventory are willing to negotiate to achieve full occupancy.
Canada - Prices On the Rise
Canada remains a very desirable place to live, with newly expanded immigration/digital nomad policies to increase the country’s labor supply. The property market, however, remains very challenged. Inflation rates are higher than in the US and new construction activity is much lower. As a result, vacancy rates in cities like Toronto and Vancouver remain at 1-2%, with rental rates likely to increase.
Mexico - Relocation Remains Steady
We are adding Mexico to our quarterly analysis. Mexico is experiencing good economic growth as a ‘nearshoring’ alternative to manufacturing suppliers in Asia. Relocation volume remains steady. While most manufacturing activity is in markets other than Mexico City, we’re including the capital city as an indicator of expatriate rental market costs. Note that Mexico City is a global capital with pricing similar to other large cities; it is not a low-cost destination. Markets like San Luis Potosi and Queretaro have lower monthly rental costs and currently supply is generally balanced with demand.
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