RDFN Redfin Corporation

Rents rose in the West and Midwest in the third quarter, even after a surge in construction

(NASDAQ: RDFN) — Asking rents for newly constructed apartments rose 1.5%—the biggest year-over-year increase in 18 months—to a median $1,802 in the third quarter. That’s according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

The rise in rents came after two consecutive quarters where rents for new apartments fell by more than 7%.

The median rent for newly constructed apartments bounced back above $1,800 in the third quarter for the first time since late 2023—after falling all the way to $1,714 in the second quarter, the lowest level since mid 2021.

Rents fall in the Northeast, as other regions see increases

The regional breakdown tells a number of different stories. Asking rents for new apartments actually fell year over year in the Northeast (-3.6%), after the number of newly finished apartments rose 13% year over year in the second quarter to the highest level since the fourth quarter of 2022.

The West region saw the biggest uptick in median rents (4.4%), despite seeing a 34.1% jump in new apartments being completed.

Midwest asking rents ticked up 3.3% after a 47% increase in new apartment completions. The South, which saw almost as many new apartment completions as the other three regions combined, posted a minor increase in rents (1.1%).

New Apartment Median Rents and Completions by Region (Q3 2024)

 

Median New Apartment Asking Rent

Median New Apartment Asking Rent YoY

No. of New Apartments Completed

New Apartment Completions YoY

Northeast

$2,300

-3.6%

11,390

13%

Midwest

$1,519

3.3%

22,430

47%

South

$1,773

1.1%

58,880

14.7%

West

$1,899

4.4%

25,910

34.1%

“We would usually predict that rents will stay flat, or even potentially fall, when there are so many new apartment buildings opening up. What’s interesting in the third quarter is that rents are rising by more than the national average in the West and Midwest, even after the number of new apartments spiked between 30-50%,” said Redfin Senior Economist Sheharyar Bokhari. “This is likely due to more new apartments being built in more expensive metros in each region, pushing the overall levels up.”

New apartments fill up slower, returning to pre-pandemic speeds amid construction boom

A separate Redfin report found that just over half (52%) of newly constructed apartments completed in the second quarter were rented out within three months.

The absorption rate, referring to the percentage of new apartments rented out within three months of being finished, was the second-lowest seasonally adjusted share since mid-2020. The rate was down slightly from 54% the previous quarter and eight percentage points lower than a year earlier.

Absorption rate returns to pre-pandemic levels as apartment completions rise

The absorption rate over the past two quarters has returned to the 50-55% rate seen in the late 2010s, prior to wild fluctuations during the pandemic where demand rose dramatically in certain areas of the country—especially the Sun Belt.

The absorption rate has slowed due to the boom in new apartment construction in areas where the pandemic demand spiked between 2020-2022. This led to the highest level of new apartment completions in at least 12 years in the second quarter.

Nationally, the rental vacancy rate for buildings with five or more units was 8% in the third quarter, the highest rate since the first quarter of 2021, another sign that supply continues to outpace demand.

It’s worth noting, however, that apartment construction is slowing. This is highlighted in Census data showing that the number of new apartments under construction at the end of October was down nearly 20% from a year earlier. The number of permits issued for new apartment buildings was also down around 20%.

New apartments filling up quickly in the Northeast, taking longer in the South and Midwest

Two-thirds (67%) of newly constructed apartments completed in the second quarter in the Northeast region were filled within three months, up from 58% a year earlier.

 

Absorption Rate Q3 2024

Absorption Rate Q3 2023

2023→2024 Difference

Northeast

67%

58%

+9 ppts

Midwest

51%

61%

-10 ppts

South

53%

58%

-5 ppts

West

58%

72%

-14 ppts

Meanwhile, new apartments filled up slowest in the South, with the absorption rate dropping to 51%, down five percentage points year over year. The South has been at the heart of the recent construction boom, with developers scrambling to meet the demand from high levels of pandemic-driven migration to many Sun Belt metros, especially in Florida and Texas. Emphasizing this, there were nearly as many new apartments completed in the South region in the second quarter as the other three regions combined.

The West region saw the absorption rate drop the most from a year earlier, down 14 percentage points to 58%.

To view the full new rental construction report, including charts and metro-level insights, please visit: https://www.redfin.com/news/new-construction-rents-Q3

To view the full rental absorption report, including charts and metro-level insights, please visit: https://www.redfin.com/news/new-rentals-absorption-q3

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, and title insurance services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve approximately 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241216356665/en/

Contact Redfin Redfin Journalist Services: Kenneth Applewhaite press@redfin.com