Apartment rent increases slowed further in the first quarter, a development that, combined with faster wage growth, is expected to ease financial stresses for low- and middle-income households over the next couple of years.
Average rent rose 2.3% to $1,310 in the first three months of the year, according to RealPage, a real estate technology and analytics firm. That marks a decline from the fourth quarter's 2.6% pace and the smallest yearly gain since the third quarter of 2010.
Rent increases have slowed steadily since peaking at 5.3% in the second half of 2015.
Equally significant is that apartment occupancy in the first quarter fell to 94.5%—a historically normal level—from 95.1% late last year and an average 95% from 2012 to 2017. During that period, tight apartment supplies and surging demand from Millennials pushed occupancy and rent higher.
"What we're seeing is a return to more normal conditions," says RealPage chief economist Greg Willett.
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The price moderation can be traced to a massive wave of apartment construction the past few years. About 319,000 units were completed over the past 12 months and another 314,000 are expected the next year, Willett says, well above the normal pace of 250,000.
Renters won't immediately feel the benefits. For several years, rent hikes have outpaced tepid annual wage growth averaging 2% to 2.5%. But pay increases picked up recently to 2.6%, Labor Department figures show, and many economists expect gains to approach 3% by the end of the year as the low unemployment rate forces employers to bid up for workers.
Over the next year or two, "Household income is going to go up faster than rent," Willett says. "That's a more comfortable situation." He expects rent growth to stabilize at about 2.5% during that period.
In the first quarter, Las Vegas had the sharpest annual rent growth at 6.2%, followed by Orlando, Fla., at 6.1%, and Sacramento, Calif., at 5.5%.