Dave:
Real estate investors need rents to keep pace with inflation to maintain cashflow and profitability, but how high can rents actually go? Can rents keep up with the higher inflation we’re seeing of late? The answer, at least nationally, is no. It has already basically stopped. But a national average isn’t really helpful to investors when the variance between markets is so big. In some markets, we’re seeing 6% rent growth, while in others they’re declining by a similar amount. As investors, we need to understand how our current and future rents are likely to perform in order to optimize existing portfolios and underwrite new deals. Some markets do have real room to run and grow, while others probably have tough times ahead. So today on On the Market, we’re getting into the business of forecasting rents. I’m going to break down the supply glut we’re working through, but also talk about a key variable in the rental market I think most people are completely missing when they think about the direction of rents, one that I actually think is maybe more important than supply in the coming years.
We’re going to look at major trends in asset classes and regions, and I’m going to give you data and information to help you understand the trajectory of rents in your own market. This is on the market. Let’s get to it.
Hey everyone, welcome to On the Market. I’m Dave Meyer. On the show, we obviously talk a lot about data. That’s kind of our thing, but mostly we talk about housing market prices and inventory and price cuts and all that. But we also need to talk about the other side of most of our businesses, which is rent. It is half the equation for rental property investors after all. So this stuff is obviously important, and today we’re going to forecast what’s happening with rents. And this isn’t just some looking into the future exercise for fun. This type of information can really help you manage your portfolio and underwrite perspective new deals. So let’s get into it. Let’s talk about where rents are heading for the rest of 2026 and into 2027. First, we need to acknowledge what’s going on in the rental market right now. And although every data source is a little bit different with the rental market, they’re showing a trend that is similar whether you’re looking at apartment list or Zillow or the MLS or whatever you’re looking at.
I’m going to actually just use the apartment list numbers because they have put out some very recent good reports. And what they’re showing is that rents last month were up 0.4%. So that’s actually pretty good, but down year over year nationally. And that’s the number we really care about when we’re talking about rents. This is similar to the housing market, but basically there is seasonality in the rental market like there is in the housing market. And so seeing rents go up in the spring from May to June, like I just reported on, not really that surprising. That’s kind of the busiest time of the year for rentals or it’s one of the busier times of the year. So what you want to look at and what I’m reporting on here is talking about May of 2025 versus May of 2026. And what we see there is that this May, rents are down 1.2% and May is the most recent month we have data for.
So on a national basis, rents have declined over the last year. And this isn’t really new. We’ve sort of seen this for the last couple of years. Basically since roughly midway through 2023, rents have been somewhat flat to somewhat declining. But that is of course nationally. And also within different asset classes, what’s going on with rent is really different. And you should take this into account when you listen to this episode and apply some of the information here into your own portfolio. Think about this piece is that the difference between asset classes is pretty significant. And when I say asset classes, talking about the difference between residential real estate like single families and large multifamily. Because in that national average that I was just sharing, multifamily is really down and dragging everything else down with it. If you actually look at CoreLogic, they put out a single family rental index and they show that prices are actually up one and a half percent year over year.
So you have to imagine multifamily is down even more than that and is pulling the whole national average down. Again, the exact numbers here I think are less important because if you look at one data source or the other, it might say we were up 0.5% versus 0.1.5%. This is just kind of the way it works with rent data because every source has a different methodology. It’s not like the housing market where people have to legally report the price that they paid for a home to their county assessor and that gets reported up and aggregated. And we know with a high degree of confidence how many home sales there are and at what price they’re selling. Rent is just different. People extrapolate from listings on apartment list or on apartments.com or Zillow or they aggregate property manager data. They’re all done a little bit different.
But again, what we’re seeing just across all data sources, because when data’s imperfect, what I try and do is just look at a bunch of them and see if what we call, it’s called directional. Is it directional? Are we seeing all of them kind of doing the same thing? And the answer is yes. Pretty flat on a national basis, negative for multifamily, modestly positive for single family rents. So that’s not terrible. It’s not like we’re seeing some huge decline in rents, and that’s normal. Even during some of the worst economic times in the American history, rents, they’re pretty sticky. They don’t go down that much. Even during the great financial crisis for reference, prices of homes went down about 20%. Rents, depending on who you ask, again with that variance in the data, it’s somewhere between six to 8%. So that’s not good if you’re a property manager, but it’s much, much different than home prices.
We don’t see real crashes in rents. And so what we’re seeing right now is a normal sort of rent recession, if you will, where prices are low. Although it is not a disaster, I think the thing that investors need to take note of, as I talked about at the beginning of the show, is that every data source that I’ve looked at shows the rate of rental increases going up by less than inflation, at least on average. So that means on average, landlords and property managers are losing money to inflation right now. Because if right now inflation’s jumped recently, it’s up above 4%, but let’s just say for the last year it’s averaged 3%. It’s up 3% and your rents only went up 1%. You are losing 2% of your spending power. But before we get into what to do about it, let’s just talk about why this is happening.
Why is rent growth slowing down? Because that will help us really forecast what might happen next. There’s kind of two variables we’re going to go over. The first is the obvious one that we’ve talked about a lot over the years, which is supply issues. This is the thing that everyone who analyzes the housing market and makes these bolt claims about crashes and blah, blah, blah, misses. They always miss the supply thing. But basically what’s going on with supply is that during COVID, there was a lot of building, especially in multifamily. People saw, wow, rents are going up like crazy. There’s demand, there’s cheap money. Let’s just build tons of multifamily. And for a little while that worked until it didn’t, where even though a lot of organizations say we have a supply shortage, an overall supply shortage in the United States, what we have is a glut of supply in the multifamily market where even though we probably need these units long-term, they all came onto the market at the same time and that doesn’t work.
You get too much supply on the market for any given amount of demand because even though we need housing units, not everyone wants to move at the same time and in the same place. And so we’re seeing areas like Austin and Phoenix and a lot of Florida that frankly overbuilt. And I don’t mean they’re overbuilt forever, I just mean they’ve overbuilt. They had too many developers doing the same thing at the same time. And that’s been going on for years. The impacts of this has been going on basically since 2023, because if you think about it, the boom of multifamily construction started in 2020, 2021. Takes two, three years to build a multifamily property. And so they started hitting the market in 23, but they’re still hitting the market. That’s the term used in multifamily is deliveries. That’s when a new multifamily unit hits the market available for rent.
It’s called a delivery. Deliveries are still high. They’re still elevated from the boom in building that went through 2022. And I know it’s four years later, but some of these projects take a while to permit and do the environmental reviews and all this stuff. And so they’ve been in the works for a long time. That will slow down though, and we’ll talk about that more in a minute, but that is probably one of the main reasons we’ve seen the decline in rents, particularly multifamily and particularly in the Sunbelt. But I did say that there is a second variable here in why rents are slowing down that I think is really under discussed when talking about rent. And I honestly think once the supply glut I was just talking about sort of works itself out and it will, that I think this second variable will maybe impact future rent growth more.
And that variable is affordability. And I know I talk about this every day when I’m talking about markets and home prices. I can’t shut up about affordability, but it is so important. It is just critically important in the way that markets work, whether that’s a housing market, a rental market, a used car market, an art market, it doesn’t matter. Affordability is hugely important in pricing because rents cannot outrun income indefinitely. And I just want to say that again. Basically, we as investors for the last couple of years, even back into the 2010s, got used to a very stable pace of rent increases. They would go up every year and the market would bear that. People could pay for that. But we are seeing a shift in dynamics where affordability is constrained across the entire economy. We’re seeing savings rates go down. We’re seeing inflation in other parts of the market where people are having to spend money there.
And on a national basis, we have become a nation that is “cost burdened.” Right now, according to HUD, the average American spends 33% of income on rent. And the line between cost burden and affordable rent is 30%. So it is over that line. And so I just want to say it again, rents cannot outrun income indefinitely. We are basically bumping up against the limit. Now that 30% number is somewhat made up. It’s not hard and fast like, oh my God, no one can pay over 30%. But most personal finance experts say that that’s what you can pay and still afford the rest of your life, all the other things. And so you get this sense when you think about these things that the typical renter is kind of at their limit. And this is a reason in addition to the supply glut that prices are starting to come down in rents.
Because even some of the markets that aren’t overbuilt are also seeing either negative rent growth or much more modest rent growth. And that just comes from affordability. And if you’re wondering how that happens mechanically, basically when rent becomes unaffordable for people, one, they may choose to move if you raise rents. Two, they might choose to stay on the lower end of the market and not go to those higher priced rents. Or three, in more dramatic situations, but this actually happens during recessions. You see this in the data, is that people decline to form households. A household is basically one unit of housing demand. So whether it’s you as a solo person, you and a significant other, it could be with a roommate, that would also be a household. And what you see in times of stressed affordability in the rental market is that people decline to form new households.
So if you’re living with a roommate and if things are cheaper, maybe you’d go out and rent your own apartment, you decide not to. Maybe you’re living with your parents as a young person and you want to go out, rent an apartment, but you can’t. And so you don’t do that. And so when you have lower overall household formation, crucial measurement for the housing market, when you have lower overall household formation, what you get is lower aggregate demand, less demand for housing in that market. And as you might know from listening to the show, when there’s lower demand that puts downward pressure on pricing. So that’s the other thing that is slowing down rents. Affordability, you can sort of think of it as I guess like a speed limit. There’s only so much it can go because people need to be able to afford it.
And just as of a couple months ago, we have seen real wages turn negative, meaning that wage growth is below inflation, so people’s spending power is going down. We also just had insane rent growth from 2020 to 2022. And so a lot of that is what’s known as a pull forward where a lot of the normal rent growth that you would see, normally it’s three, 4% every year. We saw 10, 15, 20% sometimes in a year rent growth for those years. And so the reality is that it has to sort of snap back and the growth needs to be slow or negative for a while to compensate for that pull forward. So it makes sense to me why this is happening, but we need to remember that there is this sort of speed limit. It’s like a governor on your engine in terms of how much rent can go up right now.
All right, so that’s what’s going on nationally and big picture. We got to take a quick break, but when we come back, we’re going to dig in more in the difference between single family and multifamily, and we’ll get into regional differences and how you can forecast where rents are going in your own market. We’ll be right back.
Welcome back to On the Market. I’m Dave Meyer. Thanks for joining us today. We’re talking about rents and which direction they’re going. Before the break, I gave you the big picture and how I think the two big variables here are supply and affordability. And we’re going to break down now some of the performance differences that we see in different regions across the country and different asset classes. Let’s do asset classes first. This should be self-evident if you listen to the first half of this episode, but single family rents are doing okay. They’re up 1.4% because there’s just no supply issue here with single family. So of the two variables that are slowing down rent growth, with single family, we really only have one of them, which is the affordability issue. And so we’re seeing 1.4% year over year growth. It’s fine. It’s like a third of what it normally is.
In a normal year, you would expect rents for single families to go up like three or 4%. So this is definitely below the long run average. It’s basically the lowest it’s been in 15 years, and it is about half of what inflation has been. So these have been suppressed and they’re probably going to stay suppressed because if you just look at what tenants are going through, it’s rough. 32% rent growth in the last six years is a lot for tenants. And so it’s going to take a little bit of time for that to work its way out. Within the single family rental class though, what you see is similar to the larger economy where there’s sort of a little bit of a K-shaped thing going on here where higher end single family homes are still going up. We got 2.1%. Again, this is about affordability.
If you’re at the higher end of the income bracket, you can probably afford 30% or more of your income because not everything scales with your income. Maybe your housing, you could pay a little bit above 30%, but other things don’t necessarily get more expensive. So when you see people go above that 30% threshold, it’s usually people in the higher end. And we’re seeing that now with rent growth a little bit higher, still below inflation. But if you look at the low end, even with single-family homes without that supply issue, we’re seeing only 0.6% growth. So this is again, the affordability ceiling. The limit at the bottom and middle of the market is higher even with single-family homes. So keep that in mind. And if you’re thinking I own single family, not multifamily, my rents are going to grow, maybe, but not at the lower end probably.
And even if they are sort of at the higher end right now, it’s still not keeping pace with inflation. So this is something you need to think about that your expenses are probably going to grow faster than your income for a little while. Now, hopefully inflation comes down, but for right now, that’s kind of the reality that you’re in, even in single family. Now, I do think single family will cover faster because it’s just high demand and you don’t have the supply issue, but that’s what’s going on. When you look at the multifamily market, we’ve had years of modest declines. There’s never been just like this, “Hey, it dropped 8% year over year.” But it’s been three straight years of one to 2% losses. So aggregate rents are probably down five, six, 7%, again, depending on who you ask over the last couple of years.
Where single family, even though it’s not growing at the pace of inflation, it’s never really gone down. It hasn’t gone not negative in nominal terms. Nominal just means not inflation adjusted. But in multifamily, we’ve had nominal losses. And again, the difference here is supply. Both are facing the affordability issue, but multifamily has that supply issue. That’s evidenced in the rents, but also just in occupancy rates. Occupancy rates are at 94%, which doesn’t sound bad, but that’s the lowest it’s been since 2013. And it’s down more than 2%. It was above 96% just four years ago. And so again, doesn’t sound like a big number, but when you think about how many millions and millions of units, 2% drop does make a difference. Now, like I said, I think single family will recover, but I do think multifamily will get better too. That doesn’t mean it’s going to be grow quickly or above the pace of inflation.
But the good thing about multifamily is we know when the delivery glut is going to be over, and it’s going to be in the next couple of quarters. Now that might take a while to get absorbed. Again, another multifamily term that’s just until they get occupied basically. Absorption might take a little while in terms of those new deliveries, but I do think we’ll see rents at least stabilize in the multifamily sector. So that’s where we are today, but I think we need to talk about where this is heading. Let’s start with multifamily. And again, this isn’t necessarily huge apartment buildings, but I’m talking about five units, 10 units also. I think if you are in some of these Sunbelt markets, rents are going to continue to stay suppressed probably through 2027. That is my best guess because even though the peak of deliveries, like the most multifamilies happened last year, this year in 2026 is going to be a little bit lower.
We don’t really get to “market rate supply” like a normal level of deliveries until 2028 in a lot of these markets. So I think these markets, if you’re looking at Phoenix, if you’re looking at Orlando, Atlanta, Dallas, these kinds of markets are going to stay suppressed. And Charlotte, Miami, all these markets, they’ve had so much building. Just Phoenix, as an example, is adding four to 5% of stock in the next two years. Four to 5% more units than it has in just two years is a lot. That is going to take a long time to get absorbed. And I wanted to start with multifamily here because this can and probably will bleed into single-family rents in these markets. That is the one thing you need to remember here is that even though I’m treating these asset classes differently because they have different dynamics, in certain markets, if multifamily rents are coming down, it’s going to drag on the whole place.
Because just think about Phoenix. You have all these things coming on the market, all these units coming onto the market, and any owner, developer, property manager wants to occupy them. How are they going to do that? They’re going to offer incentives and discounts. And as a tenant, if you’re looking at a single-family home, you might want that more. But if you’re going to score a screaming deal on a multifamily property, you might go to multifamily instead. It’s more competition for single-family homes. And some tenants might say, “I want a single-family home no matter what,” but a lot of people will take the best deal that they can get. And so I think in these kinds of markets, in the Sunbelt, I don’t see it recovering that quickly. I’ve debated a lot of people about this because I’ve heard a lot of people say rents were going to grow this year in 2026.
I said no, maybe 2027. But now I’m even pushing that out. I think at least for a year, maybe midway through 2027, it starts to get better, but I think we have at least a year until things even out in a lot of these markets. Again, Carolinas, Florida, Texas, these kinds of plates that are overbuilt. In terms of single-family growth, I think we’re going to stay where we are right now, which is nominal growth. So non-inflation adjusted growth. You will see your rents go up on paper, but it’s going to remain below the pace of inflation. That’s my guess on a national level. Now, if you are in one of these really supply constrained markets that are doing really well, I think you can expect solid rent growth. So these are markets like Chicago, Milwaukee, Hartford, Rochester. These markets that just continue to do well, people are moving there, even in the Midwest, and there’s not a lot of supply growth, especially in single family, that’s going to be the strongest rent play right now.
Single-family, small residential, in these growing affordable cities, that’s where they grow. Because you can actually look and see how cost-burdened tenants are in a particular market. If you look at Chicago or Detroit or Cleveland, for example, you see that the average rent, it’s something called a rent-to-income ratio, is 25%. You know there’s some room to run because 30, 33%, that’s where that speed limit comes in. But you’re not at that speed limit with those kinds of markets. And that doesn’t necessarily mean they’ll go up this year, but it does mean there’s room to grow if the economy remains strong. So if you’re looking for the strongest markets to invest in based on rents, that’s what I would look at. So again, just to summarize some of the regional differences here, the winners right now, the ones that are growing the faster, San Francisco having the AI boom.
New York, another AI boom, just strong market, and Chicago. Everyone always forgets about Chicago. It’s a great investing market. The losers right now, the biggest declines right now are Austin. Poor Austin, been sort of on the bottom of every list for years. Austin minus 4%, Phoenix minus 3%, Denver minus 3%. None of that’s looking as good. And those are multifamily rates, by the way. So if you look at single family, like I said, some of the markets I though would do best, here you go. Chicago, five and a half percent, Philadelphia, another affordable strong market, 3%. New York, 3%. Detroit, 2%. So those are still doing well. Now, I’ve mentioned a couple markets, but I probably haven’t mentioned yours. So I want to actually just talk a little bit about how you can look up some of this data for yourself and project your own rents, because this is so important to understanding what deals to buy, how to make portfolio decisions.
So I’m going to give you a projection and forecast framework, but we got to take one more quick break. We’ll be right back.
Welcome back to On the Market. I’m Dave Meyer. Today, we’re talking about rents and where they’re going to go. Before the break, I shared some national trends, regional, broken down by single family, multifamily, and all of that. But you’re probably wondering what’s happening in my market? And so I want to give you a little bit of a framework of how to think about rents and rent growth so you can underwrite deals and determine what to do with your existing portfolio. I’m going to just sort of break it down into short-term, medium term, and long-term. Then you’re going to have to go look at this data for yourself, but it’s super easy to find. So first up, I think the most important thing in the shortest term, like in the next year or two, is going to be supply. Because if you have a Metro that’s still adding four or 5% stock like Phoenix or Orlando or Denver, rents are going to stay flat to negative regardless of how affordable it is.
There’s just too much. This is kind of like the Trump card in terms of rent growth. If there’s rental units flooding the market, it is going to put downward pressure on pricing until that glut gets absorbed, and that can take a while. I’ll just speak to Denver because I invest there. We have a huge glut of supply. At the same time, the market’s not doing great. People are actually leaving Denver for the first time in a while, so that’s going to make it even longer for a lot of those units to get absorbed. So in Denver, I am not expecting rent growth, and I think I’m actually going to see rent declines in those markets until we get some relief on the supply front. For some reason though, they keep building in Denver. I don’t really understand why they don’t just stop, but that’s my problem to deal with.
But for example, I’m not even thinking that much about affordability in Denver because I know the supply issue’s going to push down my rents. That’s going to weigh heavily on my decisions about what properties I want to keep, sell, refinance. If I want to buy more, all of that. In the medium term, and medium term, I mean more like three to five years. Not the next year or two, but a little bit after that, that’s where you really have to understand affordability because even in the markets that have this supply, as that pipeline sort of drains out and that supply gets pulled out, there will be a big difference in which markets start to grow again. The ones that can grow again are the ones that are affordable. Because once you clear out the supply issue and you have affordability and wage growth, rents are going to do well.
But if you have an unaffordable market, it’s still not going to matter. Things are still going to be capped out. And so that’s why you need to look at the affordability rankings in your market. And so these are the data I would check first. So again, for that near term, go look at supply numbers. You can ask Claude or ChatGPT or whatever, just ask for how much supply is coming online in your market and ask it what ratio to its existing housing stock it is. If it’s 1% or half a percent of total supply, not that bad. If it’s three or four or 5% of supply, that’s a lot. That’s too much to come onto the market in the short term. So go do that. That’s going to be your number one thing you can do to understand where rents are going in your market.
The second thing, affordability. So what I would do if I were you is calculate the rent-to-income ratio in your area. Take the median income in your area, take the median rent and figure it out. Is it above 30%? If so, you have low affordability. Is it below 30%? If so, you probably have some room to run. And the way I would interpret that is if you’re in a market with good supply, like it’s not oversupplied and room to run, rents will probably keep up with inflation. If you’re in a market with bad supply and affordability, for the next few years, it’s not going to matter. Supply is going to suppress rents. But once that supply got clears, you’ll be able to grow. If you’re in a market with bad affordability and too much supply, I wouldn’t count on a lot of rent growth. That’s going to be tough.
Now, long run, because we know affordability today, we know supply today. But if you want to really project out fundamentals of your market and what the average is going to be for five, 10 years or longer, wages. It’s just wages. Because that’s how you maintain affordability. If you want to have a market where you’re going to be able to keep up with inflation and rents are going to be able to keep up with your expenses, people need to be earning more money in your market. You don’t get to charge more as a landlord if no one else is making more money. It doesn’t work that way. You hear a lot of people on social media being like, “I had to raise rents because my expenses went up 3%.” It’s not really how it works. On average, you can’t just charge more when people are not making more.
So if you want to understand and underwriting a market for where you’re going to be able to maintain that cashflow and income, it’s going to be where wages are growing. That’s why I put so much value when I look at markets on job growth. Job growth is going to help push up wages. The more wages go up, better things keep pace with inflation or sometimes exceed inflation. And as an investor, that’s really what you want to know. So all those things, super easy to look up. What’s wage growth, the rent-to-income ratio and supply growth in your market. And I gave you a framework for interpreting them. That should tell you a lot about where rents are going to go in the next couple of years. And please do this. I know not all of you will, but try because what deals you hold onto or sell should be impacted by this.
How you underwrite your deals for the next few years should be impacted by this. So go do this for yourself. It couldn’t be easier with AI. Right. But I’ll end with a little bit of a cheat sheet. Some of the markets I think that do have some room to run Chicago, Minneapolis, basically the Midwest, Kansas City, Indianapolis, Milwaukee, Grand Rapids, these kinds of places. Those are the places that have tight supply and low vacancy. Similar places, you look at the Northeast, New York, Philadelphia, Providence, these are places that are just always undersupplied, so those are going to have rents go up. And then there’s a lot of other markets that are sort of secondary, but still good rent growth. We’re talking about Rochester, New York, Pittsburgh, Buffalo, even some in the south, like Augusta, Georgia. Those places are probably going to grow. The places that are really constrained by supply, like the worst supply over supply places, I’ve named them already, but I’ll just say them again.
Austin, Phoenix, Denver, Dallas, San Antonio, Nashville, Orlando, Charlotte, these kinds of places. And then the ones that are okay on supply, but are affordability cap, a classic example of these are LA and Miami. They’re not oversupplied. That’s not why rent’s not growing. It’s because it’s not affordable. All right, that is our episode for today. Thank you so much. Do me a favor, go do the homework. Go check out rents if you’re an active investor, because it will help you. Don’t just guess. I can’t make a personal forecast for all of you, but if you just do the three things I just told you, ask ChatGPT, it will take you five minutes. You’ll have a much better sense of where rent is going in your market, and that’s going to make your investing decisions a whole lot easier. Thank you so much for watching this episode of On the Market.
I’m Dave Meyer. I’ll see you next time.