Recently, apartment landlord Equity Residential informed investors that revenue would be lower than expected due to softening rents in San Francisco and New York. FiveThirtyEight staffer Ben Casselman takes a look at how rents are falling in these expensive markets and how that could eventually spread to the broad market.
One of the reasons behind this drop in rent is that supply has outpaced demand with markets like Manhattan seeing an increase in inventory over the past year. While rents are falling in these markets, affordability isn't likely to change as prices are still inflating in most of the country:
As a result, rents for luxury buildings are leveling off or even falling, while rents continue to rise in the lower and middle tiers of the market. Eventually, the high-end slowdown should filter through to the rest of the market, as wealthier renters move into expensive new buildings, reducing competition for older apartments.