The housing market is beginning to cool off after seeing record-setting home prices and a limited inventory that sparked bidding wars among homebuyers through much of 2020 and 2021. As the interest rate for a 30-year fixed mortgage reached 6.6% this week and inflation sits at 8.3% , many potential homebuyers are feeling discouraged as the cost of buying a home has become more expensive.

According to the most recent NAHB/Wells Fargo Opportunity Index, 42.8% of homes that were sold in the second quarter were affordable for median income earners, a 14% drop from the first quarter. Homebuyers are being priced out of the market due to a lack of affordability and are beginning to shift their sights back to renting. But just like the home-buying market, the multifamily market has also seen its share of rising rents and high demand. Let’s look at what has been happening in the Virginia rental market and what trends are affecting current renters.

In the second quarter of 2019, the average rental rate in Virginia was $1,380, compared to the second quarter of this year, which has reached $1,617 statewide, according to Costar Data. This is a 17.2% increase from three years ago. During the pandemic, many moved from cities to suburbs looking for additional space as work shifted from the office to home. We have seen this trend reverse as offices have begun to open back up and the home-buying process becomes financially difficult.

In 2021, the rate of available units began to fall as the demand for multifamily units went up. The multifamily vacancy rate in Virginia hit 4.8% this year, up from 4.4% in the second quarter of 2021 but still lower than pre-pandemic levels. The lowest vacancy rates can be found in the small to mid-level markets in Virginia. Winchester had a rate of 2.3%, followed by Roanoke at 2.6% and Harrisonburg with 2.7%. As vacancy rates have fallen due to increased demand in the rental market, we have seen prices continue to grow across the state.

Each of Virginia’s metropolitan areas has seen significant rent growth over the last few years. In the second quarter of 2022, Northern Virginia saw double-digit growth, with the average rent price reaching $2,057. In the Roanoke market, average rents rose by 9.9% compared to the previous year, followed by Richmond, which saw a 9.5% increase. Inventory has also begun to increase with 31,575 apartment units currently under construction in the state. Much of the construction is taking place in Virginia’s largest metro areas, such as Northern Virginia, Richmond, and Hampton Roads.

As interest rates are still expected to rise as the Federal Reserve continues to battle with inflation, purchasing a home will continue to be out of reach for many would-be buyers. And with homeownership placed on the back burner, rental demand, as well as rent prices, will continue to grow. It is for those reasons that renters are opting to renew their leases or find a roommate to cut down on cost, a stark contrast to what we have seen take place over the last two years.

*Information as of October, 2022