Asking rents climbed by $6, or 0.3%, from January to February. That is the first monthly increase in rents in five months, since they last rose in September 2022, according to a recent survey. The 0.3% increase is only somewhat smaller than the typical February increase of 0.4%, averaged over data from 2016 to 2020, suggesting that the rental market remains somewhat cooler than normal.

Typical asking rents at the national level now stand at $1,976, which is 6.3% higher than one year ago, but 0.5% below the peak of $1,987 observed in September 2022. That annual growth rate is now down more than 10 percentage points from the peak growth rate observed one year ago this month: 17.0%, the record-high pace reached in February 2022.

Monthly changes: Winter comes to Florida

The steepest monthly declines in rent were observed this February in Cleveland (-1.0%), Jacksonville (-0.4%), Salt Lake City (-0.4%), Richmond (-0.3%), and Miami (-0.3%). That bucks the recent trend of mostly Western cities, plus New Orleans, having the largest rent drops earlier this winter. The substantial declines observed in two of Florida’s major metropolitan areas suggests some cooling may finally be arriving after years of very rapid rent growth.

Rents rose the most on a monthly basis in Hartford (1.3%), Sacramento (0.9%), Chicago (0.8%), New Orleans (0.6%) and Raleigh (0.6%). Many of these markets represent more affordable alternatives to competing cities, which may explain their recently climbing rents.

Western markets: Stepping off the roller coaster

Rents are very close to where they were last February in several inland West markets. On a year-over-year basis, rents are down 1.0% in Las Vegas, and only up modestly in Phoenix (1.0%), New Orleans (1.8%), Sacramento (2.5%), and Baltimore (2.9%). Annual rent growth didn’t fall much further in these markets from its pace in January.

The Western markets may be going through a lull after breakneck rent growth in 2021, when they saw a great deal of migration from expensive West Coast markets, followed by some mean reversion in rent growth in 2022. The cumulative effect, though, is that rents still stand much higher than pre-pandemic: 3-year growth in Phoenix, for instance, is still a staggering 37%.

Annual rent growth was highest in Cincinnati (9.4%), Indianapolis (9.1%), Louisville (8.9%), Kansas City (8.2%), and Boston (8.1%), reflecting the continued strength of demand in affordable, mid-sized Midwestern metropolitan areas, as well as a belated rebound for Boston. Miami’s absence from the top 5 MSAs for year-over-year rent growth is also notable, after growing the fastest earlier in the pandemic.

The most expensive major market is San Jose, where typical monthly rent is $3,189, followed by San Francisco ($3,084), New York ($3,084), San Diego ($2,959), and Boston ($2,958).

The beginning of a return to normal?

Not only did monthly rent growth in February break its 4-month streak in the red; it also climbed much closer to average pre-pandemic growth rates for that time of year. In each of the last 3 months, the monthly growth rate was 25 to 30 basis points lower than the pre-pandemic average: -0.41% in November (vs -0.11%); -0.26% in December (vs -0.01%); and -0.06% in January (vs 0.21%). But this February, growth was only 13 basis points below the 0.43% averaged at this time of year in the five years of data from 2016 to 2020.

If monthly rent growth for the rest of the year simply matches its pre-pandemic average growth rate in each month, the annual pace of growth would continue to decelerate, from February’s 6.3% to a low of 3.0% in September. A normal year of rent growth would be a major relief for renters after last year’s blistering pace of rent hikes. Year-over-year rent growth has already dropped precipitously, from a record-high of 17.0% in February of 2022.

The deceleration of annual asking rent growth in February only heightens the contrast with official inflation measures of rent growth, like the Consumer Price Index’s Rent of Primary Residence component, which grew 8.6% in January (the most recent month available at this time). Previous research suggests a 12-month lag between annual ZORI (Zillow Observed Rent Index) growth and annual CPI Rent growth, giving cause for hope that the year-over-year growth in the latter could begin to decelerate sometime soon.

One small data point consistent with such a slowdown was that the compounded annual growth rate of January’s monthly change in CPI Rent, 8.8%, was already down measurably from its pandemic-era peak of 11.1% in September of 2022. Given that monthly CPI Rent growth accelerated sharply last May and June, those months might be the most likely time this year to see a peak and turning point in year-over-year CPI Rent growth.