The third quarter is historically the most busy for apartment rentals. But, this year, RealPage reports that demand has fallen.

It is the first time in 30 years that the rental platform has reported a decline in its third-quarter metric. The report states that national demand dropped by over 82,000 units.

This occurred after an unprecedented amount of new renters moved into apartments during the Covid pandemic's first two years. It appears that household formation is now stagnant, with more renters moving outside than entering.

Apartment vacancies rose 1 percentage to 4.1%. It is still very low due the previous demand surge.

Jay Parsons, head economics and industry principals at RealPage said that soft leasing numbers combined with low home sales points to low consumer confidence. Major housing decisions are being affected by inflation and economic uncertainty. When people are uncertain, human nature is to go into 'wait and see' mode."

Because of the slowdown of demand, asking rents dropped 0.2% in September. This is the first time since December 2020.

Higher rents in general may be turning some potential tenants away, but the slowdown appears to be across all price points.

The financial health of current renters is generally good. New lease signers saw an increase in household incomes by 13% through August. Additionally, rent collections increased to 95.4% from 94.9% the previous year.

Parsons said, "If jobs and wages hold up as before and inflation cools to a certain degree, we should be able to unlock pent-up rental demand ahead of the spring 2023 lease season."

Investors in apartment stocks still have one concern: Apartment construction is at its highest level in 40 years. Apartment REITs were already getting hammered by higher interest rates, and more supply in the face of falling demand is not a good mix.

Around 917,000 units are being completed, which will see a peak in the second-half of next year. This includes the majority at the higher rents.

Carl Whitaker (senior director of research and analysis at RealPage), stated that peak rent growth is now in the rearview mirror. "This is true from coast to coast. And with apartment supply set to start increasing, it's unlikely we'll see rents reaccelerate even as demand returns."