Rents have stopped growing – but are unlikely to fall

Demand will remain strong unless Fed drives up unemployment

Rental Market, NYC Rental Market, Douglas Elliman, rents, Jonathan Miller

After months of record-breaking growth, New York City rents have finally flatlined.

In August, the median rent in Manhattan slipped 1.2 percent from July to $4,100 and the median rent with concessions dropped 1 percent in the same period to $4,059, according to a report by appraisal firm Miller Samuel for Douglas Elliman.

The dips mark the first time since February that Manhattan rents have not broken records, said report author Jonathan Miller, a sign that the market has plateaued.

Prices have leveled off as the city’s vacancy rate has ticked higher for four straight months.

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Miller said more availability could be a sign that some tenants who signed Covid-discounted leases were priced out of the city when those deals expired. But moreso, he said, it signals that rents were due to stabilize and that seasonal market patterns have returned.

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For the past 15 years, except for 2020, August has seen the most demand of any month as tenants scramble to lock in leases before the fall, when fewer rentals come to market.

“I look at it as consistency,” Miller said.

But the report author cautioned that he doesn’t see rents dropping significantly this fall.

To an extent, the Federal Reserve is to blame. By repeatedly hiking interest rates — including by 75 basis points on Wednesday — the central bank has made financing a home purchase more expensive. Rising mortgage rates have pushed some would-be buyers into the rental market, buoying prices.

But so far, the interest rate hikes have not affected business investment enough to curtail hiring. The unemployment rate is still near a 50-year low, meaning tenants have the incomes, bolstered by pandemic savings, to rent.

Until joblessness rises and tenants’ wallets get thinner, rents are unlikely to drop.

“If it’s the status quo with the economy, I think it’s a moving sideways scenario with rents,” Miller said.