Are rental rates finally about to drop in Las Vegas?
Rental rates in the Las Vegas Valley dropped for the second month in a row, according to a new study from Zillow, and analysts believe rental rates are the last key marker keeping inflation high in the country.
The average rental price for a two-bedroom apartment in the valley sits at $1,808 (Zillow determines rental rates through a weighted average nationwide) as of the end of September, a 0.2 percent drop from August, and a 1.4 percent drop year over year. The last time rental rates in Las Vegas were this low was October of last year.
However, the consumer price index — which the federal government uses to gauge inflation — still shows rents rising nationally. Zillow’s September market report shows rental rates across the country were up 0.2 percent, but Orphe Divounguy, a senior economist, said in an email response to the Las Vegas Review-Journal that rental rates are staggered behind the CPI due to leasing terms as tenants sign 12 month or longer agreements when moving into a new place.
“Although the consumer price index showed an uptick in rent prices in September, annual rent inflation continues to moderate and is likely to continue to move in the right direction,” he said. “This is because rent inflation tends to be most responsive to labor market tightness. Wage growth is moderating.”
Divounguy explained it takes roughly a year for changes in “asking rate” rents — the typical cost of a new lease — to start showing up in the CPI. The inflation rate currently sits at 3.7 percent, while the Fed has a 2 percent target inflation rate which they are combating by raising interest rates.
Zillow’s data shows rental rates may have peaked nationally back in February and March 2022, which could signal the start of a drop that is now about to kick in, he said.
National Association of Realtors Chief Economist Lawrence Yun confirmed to the Review-Journal in an email that he thinks rental rates are one of the last markers keeping inflation high and along with volatile energy and gasoline prices as the main culprit for the current market.
“Despite many private sector data pointing towards softer rent growth, the official government measurement is still showing a fast increase. Rents rose 7.4 percent from a year ago,” he said. “This is the main reason why consumer prices are not fully under control and why the Fed refuses to consider cutting interest rates. It is nonetheless inevitable for rent growth to slow because of the construction of multiple new apartments. Inflation and interest rates will be lower next year.”
Las Vegas has seen a strange rental market over the past few months, with rental rates dropping in a number of wealthier neighborhoods, while remaining stagnant or even rising in poorer neighborhoods, such as the city of North Las Vegas, according to UNLV research.
Additionally, a record-breaking number of apartment units have come on the market this year, which local analysts believe should start to bring up vacancy and start to drive down rental rates, however that has yet to play out substantially in market research.
At the same time, though, the valley is still short of somewhere around 84,000 units of low-income rental housing, which local governments are currently trying to address, which has kept the supply of housing tight.
Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.