Rent Prices Ease Amidst Apartment Building Boom, But Challenges Persist for Gen Z Homeownership: Experts

Amid still-high cost of living, there is some good news as rents are changing across the country. Redfin chief economist, Daryl Fairweather, told Fox Business that landlords are lowering the rent process due to an "apartment-building boom." The chief economist of the technology-powered real estate brokerage firm mentioned that there has been an increase in the supply of vacant properties allowing prices to cool down on the back of historic highs.

Contributing Factors Behind the Slowdown of Rent Hikes

According to Fairweather, one of the trends that shot up rent prices was the rapid movement of Americans across the country. The resulting high demand caused rents to shoot up but since the trend has slowed down, rent hikes are slowing as well.

"There are other factors also contributing to lower rent prices, such as slower-growing household formation and economic uncertainty," she further added in the report.

The reason behind the "pandemic moving frenzy" according to the economist was the state of the economy along with factors like inflation and high interest rates all of which hinder household formation.

Outlook for GenZ Homeowners

The economist also highlighted a bittersweet trend in the real estate market. According to Fairweather, Gen Z continues to face rent challenges and they have suffered from "stagnant homeownership rates" in 2022 and 2023 as well.

"Just over one-quarter of Gen Zers owned a home in 2023, so renting is the reality for most of that generation," Fairweather explained.

Despite this, the economist says that there is still a lot of hope for the young people who are outpacing the older generations when it comes to homeownership. This is mainly because many Gen Z homeowners bought properties during the pandemic when mortgage rates had hit a historic low.

According to another Redfin report, the younger generation got a good head start because of which homeowner rates for the adult GenZer population are higher than Gen Xers and millennials, when they of the same age.

The report also found that over 26% of the adult GenZ population owned a home last year. However, this did not happen over the past year as homeownership rate remained relatively unchanged with mortgage rates hitting a two-decade high.

Consumer Sentiment Remains Low

Fairweather said, "Despite more recent improvements on inflation and a strong jobs market, consumer sentiment remains low.” She added that experts at Redfin believe this is going to improve once the Fed slashes interest rates.

Similar sentiment was observed in the Axios Vibes survey, which found that renters are among the most likely to describe their current financial situation as poor. American renters have been through the wringer over the past few years, dealing with double-digit rent increases, and soaring home prices making the dream of homeownership increasingly out of reach.

According to the survey, about 57% of renters described their current financial situation as "poor," while only 29% of the homeowners said the same thing. The survey also found that homeowners are nearly twice as likely to say they're getting ahead financially, compared to renters.

Furthermore, nearly half of all respondents, 46%, said they faced a situation where they did not have any money when a bill was due over the past month compared to 29% of homeowners.

As mentioned by Fairweather, the situation may improve as the Federal Reserve is expected to cut interest rates this year. Earlier, Chair Jerome Powell stated that a March rate cut is likely off the table as per Bloomberg, but economic experts expect the Fed to course in May.