MF Rent Growth Won't Slow Down

SANTA BARBARA, CA—Giving further credence to the argument that the multifamily cycle still has plenty of runway, Yardi said Thursday thatapartment rents nationwide rose 6.5% year-over-year in July to a record $1,155. “Growth is not showing signs of moderating,” according to Yardi's Matrix Monthly report, based on a survey of owners in the 101 markets covered by the Yardi Matrix business unit. July's average rent was 20 basis points higher than June's, marking the fastest growth of the current cycle.

That dovetails with the Census Bureau's report Tuesday that rental vacancy rates had reached a 30-year low, and that homeownership had reached a 50-year low. On Wednesday, meanwhile, the National Association of Realtors reported that the forward-looking Pending Home Sales Index slipped in June after five consecutive months of increases. “The demand is there for more sales, but the determining factor will be whether or not some of these buyers decide to hold off even longer until supply improves and price growth slows,” says Lawrence Yun, NAR's chief economist.

At least one residential metric has shown improvement, although it's contained within a larger statistic that points to continued unevenness in the housing recovery. RealtyTrac said Thursday that the number of residential properties that were seriously underwater rose slightly to 7,443,580 in the second quarter, marking two consecutive quarters of increases. However, the quarter also saw the share of underwater homes in foreclosure slip to 34.4%, down from 43.6% a year ago. 

“Slowing home price appreciation in 2015 has resulted in the share of seriously underwater properties plateauing at about 13% of all properties with a mortgage,” says Daren Blomquist, VP at Seattle-based RealtyTrac. “However, the share of homeowners with the double-whammy of seriously underwater properties that are also in foreclosure is continuing to decrease and is now at the lowest level we've seen since we began tracking that metric in the first quarter of 2012.”

Regarding multifamily rents' new high, Yardi says that technology-driven markets in the western US continued to spearhead growth, led by Portland, OR, Denver and San Francisco. However, growth is strong across the board in all 30 of the markets featured in the Matrix Monthly, with only five metro areas experiencing less than a 4% Y-O-Y increase.

That many of the fastest-growth rental markets are also leading the pack in employment growth isn't coincidental. “Rent growth in the current cycle appears to be correlated more with higher demand than supply factors,” according to the Matrix Monthly.

While not invariably the case in all metro areas, “those with job growth above the national average tend to be among the leaders in rent growth, even if supply growth is above-trend,” Yardi says. San Francisco, with 3.9% Y-O-Y job growth on a six-month moving average, Atlanta (4.1%), Inland Empire (4.1%), Denver (3.5%) and Seattle (3.4%) all have been “consistently among the top performers in rent gains, despite having varying levels of supply growth.”

Conversely, Yardi reports that metros with below-trend job growth such as Richmond (0.9%), Philadelphia (1.4%), Chicago (1.4%), Baltimore (1.6%) and the Twin Cities (1.8%) have consistently ranked among the worst performers in terms of rent growth, even as some of them have relatively low supply levels. “While the numbers are a snapshot and not a long-term study, they show the importance of jobs for rent growth,” according to the Matrix Monthly.