Rental Market Splits As Midwest Hits 5-Year Highs Despite National Decline

Rental prices are declining across most of the United States, but costs in the Midwest have just hit pre-pandemic highs.

Cities like Indianapolis, Milwaukee, and Minneapolis set records for the highest median asking rents since 2019, according to a report issued by Realtor.com on Wednesday. Realtor.com economists said the surge is driven by resilient local employment rates and a lag in new housing developments, contrasting with the broader national scene where rents are gradually retrenching from their pandemic peaks.

"The robust labor markets in these metropolitan areas may serve as significant drivers of accelerated rent growth," noted Realtor.com economist Jiayi Xu.

In Indianapolis, rents climbed to $1,334, a 4.5% increase from the previous year. Milwaukee’s rent rose to $1,671, marking a 3.8% increase, while Minneapolis saw a 2.5% hike, reaching $1,529.

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According to the report, rents in other Midwestern cities are also approaching peak levels. In Chicago, asking rents climbed to $1,834, just under the all-time high of $1,925 in 2022, while rents in Cincinnati hit $1,354. In Cleveland, rents hit $1,210.

Realtor.com noted that if the trend continues, rents in those cities will hit new all-time highs by this summer.

Meanwhile, other metropolitan areas across the country reported increases in median asking rents in April compared to last year. Price hikes were seen in several regions, including a 4.1% increase in New York-Newark-Jersey City, pushing rents to $2,876.

Other areas like Sacramento and San Jose saw increases of 3.0% and 3.7%, reaching $1,953 and $3,318, respectively. Smaller hikes were also seen in cities like Birmingham-Hoover, Chicago-Naperville-Elgin, and Philadelphia-Camden-Wilmington.

Falling Elsewhere

While rents are reaching new heights in some Midwestern cities, the national picture tells a different story.

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According to the report, median asking rents for apartments with up to two bedrooms in the U.S. saw a slight decline of 0.7% from the previous year, settling at $1,723 last month.

The drop, evident across all size categories, suggests a broader trend of easing rental prices, though they remain only marginally below the peak of August 2022 by $33 or 1.9%.

Cities like Austin and San Francisco are leading the trend of falling rents. Austin’s median rent dropped to $1,494 in April, down by 11.5% from its 2022 peak, saving renters nearly $200 monthly. Similarly, San Francisco saw a 9.9% decrease from its peak, with current rents lower than pre-pandemic levels — a rarity in today's market, indicating a shift in the tech industry and broader economic changes affecting housing affordability.

However, Xu warns that the decline in rent might be reaching its bottom.

"While the year-over-year change in market asking rents tracked by Realtor.com has been negative since last August, the decline appears to have bottomed out in February," Xu said.

She continued, "This deceleration trend could make it difficult to see further improvement in the overall rate of inflation, complicating the Fed's policy decision and underscoring the need for additional housing construction to alleviate the supply shortage that is contributing to higher cost."

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