A U.S. construction boom is putting so many new apartments on the market that they are overwhelming the strongest move-in demand in almost three years, and that's suppressing rent growth.

While move-ins outpaced move-outs in the second quarter by 170,000 units, the highest rate since the third quarter of 2021, new unit openings reached 180,000, according to a report from CoStar Group's Apartments.com. Rents increased 90 basis points on a year-over-year basis nationwide.

Markets in the South, where much of the new units opened, registered smaller increases in rent growth than the rest of the nation.

In Louisville, Kentucky, rents rose the most among the 50 largest U.S. metropolitan areas in the past 12 months, while the greatest declines were in Austin, Texas.

Nationwide, June’s 0.9% growth in year-over-year rent is down from 1.0% growth in each of the past four months, but in line with figures registered since mid-2023, according to the report. Vacancy rates remained level at 7.8%, the first quarter in nearly three years in which vacancy rates did not rise.

With 574,000 additional apartment units slated to open in 2024, near the 40-year high in openings set in 2023, rent prices are expected to remain subdued throughout the year, particularly in the South and among luxury properties where most of the new supply is concentrated, the report said.

In the South, supply conditions led to no rent growth over the past year — but still an improvement from the 0.2% decline registered in 2023. In fact, eight of the bottom 10 performing markets were from the South. In addition to Austin, where rents fell 5.7%, rents declined between 2% and 3.1% in Tucson, Arizona; Raleigh, North Carolina; Jacksonville, Florida; and Atlanta.

Rents fell between 1.4% and 1.7% in Dallas; San Antonio; Charlotte, North Carolina; and Tampa, Florida.

In contrast, rents in the Northeast and Midwest, regions that have largely avoided overbuilding, each grew on average by 2.4% in the past 12 months. Rents in the West were hobbled by weaker demand and more apartment openings, growing just 50 basis points over that time — significantly lower than the 2.4% in the other two regions.

While Louisville led rent price gains with a 4.9% increase, other cities with price gains above 3% include Cleveland; Washington, D.C.; Richmond, Virginia; and Columbus, Ohio.

Prices also varied by property type. Move-ins outpaced move-outs in high-end apartments by 123,000 units, but rent growth was the weakest for this segment, at 0.2%.

Demand for mid-priced apartments accelerated in the second quarter, with move-ins outpacing move-outs by 43,000 units, increasing from 33,000 units in the first quarter. That additional demand translated to a 1.5% jump in asking rents year over year. CoStar analysts pinned the improvement in this segment on improving consumer confidence, lower inflation, and sustained economic expansion.