Between the United States’ most populated Metropolitan Statistical Areas (MSAs), southern cities recorded some of the most significant increases in rental payments in July, including Arizona’s capital.

Of the top 10 most populous MSAs, Phoenix reported the biggest annual growth in median rent payments last month, according to a new report from the Bank of America Institute. Using the Bank’s internal rent payment data for major cities, the report stated that median rents in Phoenix increased 15% year-over-year in July. This rise is slightly higher than fellow southern cities such as Atlanta and Dallas, where median rents grew 11% and 10% over the same period.

The Bank reported that both Phoenix and Atlanta are among the MSAs that are seeing the highest rent inflation, with the rent component of Consumer Price Index (CPI) up 21% and 13% yearly in July. This figure is far above the national average of 6.3%.

Limited rental supply could be the reason why rental payments are rising fast in southern cities, the Bank suggested. Vacant rentals as a share of total housing units in the South dropped by nearly one percentage point on a quarterly basis, the largest decline among all four U.S. geographic regions since 2019.

On the other hand, other large cities reported a noticeably smaller uptick in rents during July. For example, based on internal data, rental payments in Los Angeles and New York jumped 3% and 4% annually last month. However, the Bank explained that this median rent payment may not reflect the “real effective rent payment.”

“[In] New York City, during the pandemic, some landlords offered several months free as concession instead of lowering the listed rent price,” said the Bank’s report. “More recently, as the rental market started to heat up again, they are no longer offering those concessions. As a result, Bank of America median rent payment data could understate the effective increase in rent payments.”

Median rental payments rise 7.4% annually for Bank of America customers

Over the last year, inflation has been picking up, impacting everything from travel to car sales. As the Bank of America Institute points out, inflation has become more widespread in the economy, including rental prices.

According to internal bank data, median rent payments for Bank of America customers increased 7.4% year-over-year in July, slightly higher compared to June, when payments grew 7.2% annually.

Even as overall inflation pressures backed off in July, data from the CPI report shows that rent for a primary residence increased to 6.3% yearly, the fastest pace since 1986. The Bank pointed to rent inflation as an “important area of focus,” as 34% of U.S. households are renters and approximately 47% of lower-income families rent.

“As a result, a significant increase in rent prices can have a meaningful impact on household financial situations, particularly for middle- and lower-income households,” noted the report.

Based on internal data, all income groups are seeing annual rental payment increases. Households making $51,000 to $100,000 per year saw median rent payments jump 8.3% year-over-year in July. The lowest income group, those making $50,000 or less, reported an annual increase of 7.4%, while the top-earning households with $251,000 of annual income or more saw median rent payments climb 5.9% annually.

Based on a forecast from the Federal Reserve Bank of Dallas, the rent component of CPI will continue to increase in the coming months, reaching a peak of 8.4% in May 2023. Afterwards, the percentage will ease downward but remain at 6.7% in December 2023.

“This suggests the squeeze from higher rent will likely [be] persistent for the foreseeable future,” said the Bank’s report. “Despite elevated bank balances and strong wages at the moment, [rent] inflation could eventually bite into consumers’ purchasing power elsewhere in a more meaningful way.”

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