Rent-Burdened Metros Show Signs of Cooling
Four pricey metros posted rent-to-income ratio declines in the third quarter.
Rent-burdened metros — those in which rent-to-income ratios exceed 30% — are showing some signs of cooling, according to a new analysis from Moody’s Analytics.
Four pricey metros classified as rent burdened by Moody’s posted rent-to-income ratio declines in the third quarter, led by Northern New Jersey (-46 bps), Los Angeles (-33 bps), Miami (-26 bps), and Palm Beach (-19 bps). Northern New Jersey was also the only metro on Moody’s list of top rent-burdened regions to post a rent decline (-0.7%). Income growth outpaced rent growth in the other three cities.
Meanwhile, New York and Boston — two other metros on the rent-burdened list — each showed an increase of more than 100 basis points in rent burdening for median household. New York rents grew by nearly 20% year over year, while Boston is at 17%.
Moody’s economists note that the “tide may be turning — at least temporarily,” however: while 97% of primary US metros saw their rent burden increase over the last year, in the third quarter that number was just 67%, or 53 out of 79 cities. And 68% (54 out of 79) of the primary metros Moody’s surveyed have seen their rent growth decelerate from a quarter ago, with just San Francisco and San Diego showing accelerating rent growth among the top 20 rent-burdening metros.
“For the 26 metros with RTI declines, three West Coast metros – Sacramento (-60 bps), Ventura County (-56 bps), and Portland (-49 bps) – experienced rent declines over 1% while incomes continued to inch upward,” write Moody’s experts Lu Chen, Mary Le and Thomas LaSalvia. “The resilient labor market and inflationary pressures have led to reasonably strong nominal wage growth, while rent growth has slowed closer to long run averages. In past recessions, wage growth softening combined with larger rent deceleration could mean ease of rent burdening. We are watching employment changes as a leading indicator of both.”
And among “hot metros” — the top 20 metros with the fastest rent growth during COVID — rent growth averaged 1%, which has mostly been balanced by income growth. Rent-burdening dropped in two of those cities since the beginning of the year, with Jacksonville posting the largest decline of 0.6% and Little Rock following with a 0.3% drop.