In this week’s issue, we explore new national rent data.
Main Takeaway: Rents are exhibiting a summer cooldown following record-breaking increases over the past two years. Expect this trend to continue, but with rental supply tight and interest rates high, expect demand for rental housing to remain robust over the coming year keeping vacancy at historical lows.
Story: In our last rent update earlier in the year we assessed that despite rents increasing at a record pace over the previous two years, we should expect a deceleration in the near term. That time has arrived. Two significant rent reports were released in the past month that shed a spotlight on this deceleration. Here are the key takeaways for multifamily owners and investors.
Multifamily rent trends for 2022
Apartment List released its National Rent Report highlighting a number of key rental trends, starting with slowing rent growth. In the first half of 2021, rent increased 8.8%, whereas during the same time this year they’ve only jumped 5.4%.
Rents for the month of June 2022 increased by 1.3%, which was consistent with the previous month, and lower than the 2.5% in June of 2021. To compare, between 2017 and 2019, the average June month-over-month growth averaged 0.7%.
Vacancy is up as we enter recessionary headwinds
According to the data, the vacancy index is now 5%, up from a historical low of 4.1% last year. The current vacancy rate is still well below the pre-pandemic norm, highlighting the continued strong demand for rental housing.
Cities with the fastest rent growth, and cities with declining rent
Since March 2020, the cities with the largest growth were Tampa, FL (+42%), Rochester, NY (+41%), and Tucson, AZ (+40%). And, the cities with the slowest rent growth since March 2020 were San Fransisco, CA (-1%), San Jose, FL (+3%), and Minneapolis, MN (+4%).
According to new data from Redfin, the top 10 metro areas with the fastest-rising rents year-over-year in June 2022 were:
- Cincinnati, OH (39%)
- Seattle, WA (33%)
- Austin, TX (32%)
- Nashville, TN (31%)
- New York, NY (27%)
- Nassau County, NY (27%)
- New Brunswick, NJ (27%)
- Newark, NJ (27%)
- Portland, OR (24%)
- San Antonio, TX (23%)
According to its data, the bottom 3 cities for rent growth were Milwaukee, WI (-12%), Minneapolis, MN (-7%), and Kansas City, MO (-0.5%). Adding to this discussion is Zumper’s National Rent Index, where the top and bottom cities for rent growth were as follows:
Two bedrooms suffering higher rent deceleration
According to the Zumper data one-bedroom apartment rent increased 0.5% month-over-month in June 2022, whereas two-bedroom units saw rents decrease by 2.9%. This could be a signal that two-bedroom renters are taking the opportunity in a cooling housing market to make a purchase and jump from renting to owning.
Rents outpacing inflation = Multifamily investor opportunity
Because both multifamily apartment values and rents continue to outpace inflation, this asset class continues to be appealing to investors. This is particularly true given that multifamily demand is projected to remain robust throughout the coming years.
Multifamily rents moderating throughout 2022
That said, there are headwinds for multifamily rents ahead. According to CoStar, “Rents sitting at all-time highs plus the tight vacancy rate has tempered demand slightly, as potential household formations can longer afford or find an available apartment to rent. However, making a larger negative impact on multifamily demand has been rising inflation and growing economic uncertainty that has gripped the nation throughout 2022.”
According to Mark Zandi, chief economist at Moody’s Analytics, there is a lot of new supply coming online for multifamily, which will further stabilize rents. This doesn’t mean rents will drop, instead, Zandi predicts they will plateau or flatline.
“More people are opting to live alone, and rising mortgage-interest rates are forcing would-be homebuyers to keep renting…These are among the demand-side pressures keeping rents sky-high. While renting has become more expensive, it is now more attractive than buying for many Americans this year as mortgage payments have surpassed rents on many homes. Although we expect rent-price growth to continue to slow in the coming months, it will likely remain high, causing ongoing affordability issues for renters.”— Taylor Marr, Redfin Deputy Chief Economist
“Moderating demand and rent growth were widely expected, and it appears to be finally happening…The open question is whether the market is entering a true slowdown due to inflation or it’s stabilizing toward more sustainable, balanced levels. We tend to take the latter view.”— Jay Parsons, RealPage’s Head of Economics and Industry Principals