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77 October 2024 J O U R N A L Only this year's first quarter had a greater reduction in rents—by 7.5%— than the second consecutive quarter in which newly constructed apartment rentals showed an annual decline, and the second-deepest decline in the previ- ous five years. A new Redfin study from the U.S. Cen- sus Bureau for newly built, unfurnished, privately financed rental apartments in buildings with five or more units, spanning back to Q1 of 2012, indicates as much. The flats that were finished in Q1 of 2024 and either rented or not within three months of that date are measured by the most recent statistics available. Will an Apartment Construction Boom Lead to Lower Rents? As the number of newly built apart- ments increased, monthly asking rentals for new flats peaked in the first quarter of 2022 at $1,889 but have since declined. Q1 experienced an 18.7% increase in apartment completions year over year, representing the greatest growth in more than 10 years. "Rents for new apartments will likely fall a little more this year because there are still a ton of new buildings being com- pleted," said Sheharyar Bokhari, Senior Economist at Redfin. "With new apart- ments popping up everywhere, owners are competing with one another to find tenants by reducing rents and offering concessions like free parking. If you're a renter in a market like Dallas or Nashville, where construction has been booming, there are likely deals to be found." According to Redfin's Rental Tracker, overall rentals (for both new and existing apartments) plummeted 17.6% in August year over year in Austin, Texas, providing an illustration of the significant impact new construction has on asking rates. Like many Sun Belt metro areas, Austin has had some of the highest rates of multifam- ily housing construction in recent years; but, as supply rises and demand levels off, rents are beginning to decline. Newly Constructed 1BR Apartments Experience Biggest Drops in Rent The most common type of new apartment, one-bedroom units, saw the biggest decline in rent in the second quarter, falling 9% year over year to $1,566. Apartments with two bedrooms had a 4.5% decline to $1,934, while those with three or more bedrooms saw a 3% decline to $2,309. The asking rent for studio flats increased by 0.9% to $1,617. Like this month, the median asking rent for newly built studio apartments is more erratic and occasionally exceeds that of one-bedroom apartments. This is because many fewer studios are being constructed and those tend to be found in more affluent, larger cities. HOW MUCH DO BUYERS NEED TO AFFORD THE TYPICAL STARTER HOME? A ccording to a new Redfin analysis, Americans must make $76,995 annually to afford the median-priced starter home ($250,000), a 0.4% decrease from the previous year. Since August 2020, when mortgage rates were getting close to a record low, that is the first annual drop. Although the cost of a starter house has increased by 4.2% annually, the income required to buy one has decreased due to a sufficient decrease in mortgage rates. For the first time in three years, the average interest rate on a 30-year mortgage decreased annually in August, from 7.07% to 6.5%. Since then, it has decreased even further, and it is now at 6.08%. Still, the income needed to finance a starter home is only 3.6% below the record high of $79,857 recorded last fall. "It's great news that starter homes are becoming a little more affordable, but there's a catch," said Elijah de la Campa, Senior Economist at Redfin. "Starter homes aren't what they used to be. A decade ago, a turnkey four-bedroom house in a nice neighborhood was often considered a starter home, but today, a small fixer-upper condo is often all a first-time homebuyer can afford. The American Dream is changing; for many, it no longer involves a house and a white picket fence." Prospective homeowners should be advised that the affordability of starter homes might not increase significantly, "Rents for new apartments will likely fall a little more this year because there are still a ton of new buildings being completed." —Sheharyar Bokhari, Senior Economist, Redfin