SANTA BARBARA, CA—It's not time to hit the pause button on apartment rent growth, but recent indicators point to deceleration in that growth. Yardi Matrix's fall forecast, released Wednesday, shows a trend of declining month-over-month gains nationwide, even as rents continue climbing to new highs.

August rents were up 5% nationwide on a year-over-year basis. That represents a 50-basis point decline in Y-O-Y growth compared to July, which in turn was down 10 bps from June, which was off 30 bps in annual growth comparted to May. “In other words, rent growth is falling to more sustainable levels after flirting with the 6%-plus range for almost two years,” according to the Yardi Matrix report.

However, the report notes, “Decelerating growth is not the same as negative growth—not by a long shot. Rent growth generally remains solid across much of the country.”

On a Y-O-Y basis through August, rents increased between 5% and 8% in many metro areas across the Sun Belt, Southwest and Southern California, the report states. Even some of the slower-growth markets in the East and Midwest—including Chicago, Philadelphia, Kansas City and Washington, DC—have registered annual gains of 3% to 5%, above the rate of inflation and more than the 2.2% long-term national average.

Although there are now fewer metro areas seeing outsized Y-O-Y rent growth than there were a year ago, 18 of Yardi Matrix's top 30 metros have seen solid growth of between 4% and 7% over the past year. The August rent growth champs, predictably, all were on the West Coast: Sacramento (11.9% annual gains), Seattle (9.3%) and the Inland Empire (9.2%).

“As fundamentals in most of the country remain healthy, metros that have not gotten ahead of themselves should continue to see moderate to strong gains,” the report states.“All of the demand drivers that have propelled the market—rising Millennial population, the growing Baby Boomer generation increasingly downsizing, reduced homeownership levels and strong employment growth—are still in effect and not likely to change much over the next few years.”

Conversely, there are those markets that have gotten ahead of themselves, with Houston offering the most prominent example. The Yardi Matrix report notes that the Oil City is being hit with a shrinking job market and a large increase in supply. Houston has seen 10,000 units completed year-to-date through July, and another 15,000 are projected to come on line by year's end. “Predictably, the metro has become the worst performing in the US during the past year when it comes to rent growth,” according to Yardi Matrix.

Outside Houston, the recent deceleration has been most pronounced in some tech-heavy metros, which are “coming back to earth due to the combination of waning demand and affordability issues in the face of growing supply,” the report states. San Francisco, for example, went from 12% rent growth in 2015 and slowed to 1.6% Y-O-Y in August. Denver's growth slowed to 3.5% Y-O-Y after an 11% increase last year, while Austin has cooled from 6.9% to 4.8%. All three markets will see more than 10,000 new apartments delivered by the end of this year.

“We don't foresee calamity for these tech-centric metros, but they will see more moderate growth until the current batch of supply is absorbed,” according to Yardi Matrix. “The deceleration is in line with our expectations, given the natural limits when income growth is roughly 2.5%. In that environment, rent growth can only return to more moderate levels. We forecast 4.5% growth for 2016, so if anything, year-to-date increases of 4.8% through August have surprised on the upside.”

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However, the report notes, “Decelerating growth is not the same as negative growth—not by a long shot. Rent growth generally remains solid across much of the country.”

“As fundamentals in most of the country remain healthy, metros that have not gotten ahead of themselves should continue to see moderate to strong gains,” the report states.“All of the demand drivers that have propelled the market—rising Millennial population, the growing Baby Boomer generation increasingly downsizing, reduced homeownership levels and strong employment growth—are still in effect and not likely to change much over the next few years.”

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