National data confirms what we’re seeing on the ground in the Sunbelt: the rental market has split into two separate economies, and the gap is widening.
Every week, our leasing team fields inquiries from prospective residents who have read the headlines about falling rents. They have seen the national data showing 29 consecutive months of year-over-year declines. They expect to find relief. And every week, a significant portion of those inquiries end in disappointment because the applicants cannot meet even basic qualification standards.
This disconnect between macro headlines and ground-level reality has become one of the defining features of the current rental market. A recent Realtor.com analysis put hard numbers to what we have been observing for years: the rental market has fractured into two distinct economies, and the people who most need relief are the least likely to receive it.
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The Numbers Behind the Fracture
According to Realtor.com’s December 2025 rental report, the national median asking rent across the 50 largest metros registered at $1,689, down 0.7% from December 2024. That sounds like good news. But the median obscures a more troubling pattern.
Since late 2019, the bottom of the market (the 25th percentile of asking rents) has surged approximately 20%. The top of the market (75th percentile) increased just 12.5% over the same period. That 7.5 percentage point gap represents a fundamental compression of the rental market, where affordable units have become dramatically more expensive relative to premium properties.
The relief phase tells the same story in reverse. Since December 2022, higher-priced rentals have fallen 3.5% in price. The median dropped 2.3%. Lower-priced properties? Just 0.8%. The residents who can least afford rent increases absorbed the largest increases, and when the market finally softened, they received the smallest benefit.
Joel Berner, senior economist at Realtor.com, framed it directly: this data helps answer the question economists frequently hear about why low-income residents continue to struggle despite falling median rents. The median is a statistical abstraction. It does not pay anyone’s rent.
The Sunbelt Paradox
Our markets in the Southeast sit at the epicenter of this phenomenon. The Realtor.com data showed Nashville with the second-highest compression in the country, with the 25th percentile rent as a share of median increasing 6.8 percentage points since 2019. Atlanta ranked third at 6.1 percentage points. Charlotte, where we have operated for nearly two decades, follows similar patterns.
The mechanism driving this compression is straightforward, and we have watched it unfold in real time. During and after the pandemic, owners of older, naturally affordable rental properties faced a choice. They could continue operating aging assets with increasing maintenance demands and modest cash flows, or they could sell to developers offering premium prices. Many sold.
Those properties met one of two fates. Some were demolished and replaced with new luxury construction. Others were gut-renovated and relisted at significantly higher rents. In both cases, the affordable unit disappeared from the market permanently.
Michelle Becker, a Nashville-area real estate agent quoted in the Realtor.com report, described the result bluntly: many residents were pushed out of the Nashville market entirely, relocating to outlying communities or moving in with family. The makeup of the rental community has changed drastically and, in her assessment, may never look the same again.
We see the same dynamic playing out across our Sunbelt markets. The duplexes that once provided workforce housing have been converted to single-family homes or torn down for townhouse developments. The garden-style apartment complexes built in the 1970s have been repositioned as Class A properties with updated finishes and rents to match. The supply of naturally occurring affordable housing continues to contract while demand from cost-burdened households continues to grow.
The Approval Rate Reality
Here is where the macro data meets our daily operations. Rents in our markets have indeed softened. We have adjusted pricing on numerous properties to reflect current conditions. Vacancy has become more of a concern than it was during the frenzied post-pandemic period. And yet, a significant percentage of inquiries we receive come from applicants who cannot meet standard qualification criteria.
The typical qualification standard in our industry requires gross income of three times the monthly rent. For a $1,500 property, that means $4,500 per month, or $54,000 annually. Credit standards vary, but most professional property managers require scores in the mid-600s at minimum, with clean rental histories showing no evictions, consistent payment patterns, and positive landlord references.
These standards exist for good reason. Landlords who relax qualification requirements during soft markets frequently pay for that decision through increased delinquency, property damage, and eventual eviction costs. We have seen this cycle repeat across multiple market corrections. The pressure to fill vacancies leads to compromised screening, which leads to problem tenancies, which leads to losses that far exceed the vacancy cost the landlord was trying to avoid.
But the consequence of maintaining standards in the current environment is a growing population of prospective residents who cannot qualify for available housing at any price point in our markets. They have income. They have jobs. They have references. But the math simply does not work when even the lower tier of the rental market has compressed upward by 20% while wage growth has not kept pace.
The Premium Property Paradox
The compression phenomenon creates a particular challenge for more desirable properties. When we list a well-maintained single-family home in a good school district with updated finishes and professional landscaping, we receive substantial interest. These properties generate multiple applications. But the applicant pool increasingly bifurcates into two groups: highly qualified applicants who could easily afford the home but are choosing to rent rather than buy, and aspirational applicants who want the property but cannot demonstrate the income or credit history to qualify.
The first group reflects another trend highlighted in the Realtor.com analysis. High earners in premium rental units are delaying homeownership because they feel comfortable with their current housing costs. When a household earning $150,000 can rent a nice home for $2,200 per month while facing a purchase payment of $3,500 or more for comparable housing at current interest rates, the rent-versus-buy calculus has shifted dramatically. These residents are not stuck renting. They are choosing to rent, and they are absorbing inventory that might otherwise create downward pricing pressure on the broader market.
The second group represents the growing affordability crisis. Households earning $50,000 to $70,000 who once could qualify for solid B-class housing now find themselves priced out of properties they would have easily accessed five years ago. The 20% increase in lower-tier rents translates to roughly $250 to $350 per month in additional housing cost, an amount that pushes many working families past the 30% of income threshold that defines housing cost burden.
The Supply Pipeline Problem
New construction has not solved this problem, and current pipeline dynamics suggest it will not solve it anytime soon. The multifamily construction surge of 2022 and 2023 delivered significant new inventory to Sunbelt markets, but the overwhelming majority of those units targeted the luxury segment. Developers building ground-up construction cannot achieve acceptable returns at workforce housing price points given current land costs, labor costs, and materials costs.
The math is unforgiving. A developer purchasing land in a desirable Charlotte or Atlanta submarket will pay $40,000 to $80,000 per door for the land alone. Construction costs run $150,000 to $200,000 per unit for mid-rise multifamily. By the time the property is stabilized, the all-in cost approaches $250,000 per door. To generate acceptable returns, that unit needs to rent for $2,000 per month or more. There is no path to building new $1,200 apartments in desirable locations without subsidy.
This means the supply of affordable housing depends almost entirely on the aging of existing stock and the filtering process, where older units become more affordable as newer units absorb premium demand. But we just discussed what happened to that older stock during the pandemic: it got bought, renovated, and repositioned. The filtering mechanism has been disrupted, and the supply of naturally affordable housing continues to shrink.
What This Means for Property Owners
For landlords operating in the current market, this bifurcation creates both challenges and opportunities. The challenge is obvious: if you own workforce housing, your applicant pool has thinned. You may experience longer vacancy periods. You may face pressure to relax standards that should not be relaxed. You may encounter more application fraud as desperate households attempt to qualify for housing they cannot afford.
The opportunity is subtler but significant. Quality residents who can qualify are more valuable than ever. They have options, yes, but they also face a market where finding well-managed, well-maintained housing at fair prices has become genuinely difficult. Landlords who provide that combination will attract and retain the best residents. The old adage about not being the cheapest option but being the best value has never been more relevant.
We counsel our clients to focus on Net Operating Income rather than gross rent. A property rented at $1,400 to a resident who pays on time, maintains the home, and renews year after year generates better returns than a property rented at $1,500 to a resident who pays late, causes damage, and churns out after eight months. The spread between those scenarios has always mattered, but it matters more in a market where filling vacancies takes longer and qualified applicants are harder to find.
What This Means for Residents
For prospective residents navigating this market, realism is essential. The headlines about falling rents do not translate to universal relief. If you are looking for housing at the lower end of the market, expect competition for limited inventory. Expect landlords to maintain qualification standards. Expect the process to take longer than you might hope.
There are strategies that improve outcomes. Strong rental references from previous landlords carry significant weight in a market where many applicants have problematic histories. Demonstrable income stability matters more than income maximization. A household earning $55,000 with three years at the same employer often presents better than a household earning $70,000 with job changes every eight months. Documentation that makes the approval process easy for property managers creates competitive advantage when multiple applications arrive simultaneously.
Geographic flexibility also helps. The Realtor.com data showed Cleveland with the largest share of affordable rentals among major metros. Cleveland’s median rent of $1,257 in December represents a different universe than Boston’s $2,844 or the $1,700+ medians common in growing Sunbelt markets. Remote work has made location arbitrage possible for many households. Those who can exercise that flexibility may find better options outside the most competitive markets.
The Federal Reserve Overhang
We have written extensively about the Federal Reserve’s focus on shelter inflation as a component of overall price stability. That policy priority created the environment where rent growth had to moderate. The 29 consecutive months of year-over-year declines reflect, in part, the Fed’s success in cooling an overheated market.
But the data on rent compression suggests the policy achieved its goals unevenly. Premium rentals moderated significantly. Affordable rentals barely budged. If the Fed’s ultimate concern is household financial stability, the disproportionate impact on lower-income households represents a complicating factor. Cooling aggregate shelter inflation while leaving the most cost-burdened households behind may address the statistical problem without addressing the human one.
The interest rate environment also feeds back into the rent-versus-buy calculation. High mortgage rates have pushed potential buyers into the rental market, particularly at the premium tier. These households have the income and credit to buy but choose not to at current rates. Their presence in the rental market keeps demand elevated for higher-end units even as rents nominally decline. The compression continues.
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The Path Forward
We do not see the bifurcation resolving quickly. The supply constraints on affordable housing are structural. The demand pressures from cost-burdened households are persistent. The filtering mechanism that once created affordable housing through the natural aging of stock has been disrupted by renovation and redevelopment economics.
Several scenarios could change the trajectory. Significant interest rate declines would pull premium renters back into the purchase market, reducing competition at the higher end. Economic weakness would moderate demand across all price points, though this represents a painful solution to an affordability problem. Policy intervention through subsidized housing production could address supply constraints, though the political and fiscal obstacles remain substantial.
For now, market participants must operate within the current reality. Landlords need to understand that the tenant pool has stratified and adjust expectations accordingly. Residents need to understand that headline rent declines may not translate to their specific circumstances. Property managers need to maintain standards while finding ways to serve qualified applicants efficiently.
The Nashville agent quoted in the Realtor.com piece suggested that a targeted effort is needed to recreate the affordable housing options that have been lost. She is correct. But until that effort materializes at scale, the rental market will continue operating as two separate economies: one where rents are falling and qualified residents have choices, and another where costs keep climbing and options keep shrinking.
We manage properties across both segments of this bifurcated market. Our job is to help owners maximize their investment returns while providing quality housing to residents who qualify. That mission has not changed, but the market context has become significantly more complex. Understanding that complexity is the first step toward navigating it successfully.
