Apartment Growth Strong But Will Be Tested

Apartment rents maintained their bullish growth in August, rising by $7 to a record $1,162, reported Yardi Matrix, Englewood, Colo.   

“Perhaps more importantly, the numbers in August matched July’s 6.5 percent year-over-year increase, which indicates that rent growth does not seem to be slowing down,” said Yardi Matrix Vice President Jeffrey Adler.  

But Adler said recent stock market volatility will pose a “significant test” to the apartment sector. “Although the major causes of the sudden 10 percent decline in stock values–the collapse of stock prices and currency depreciation in China, slower growth in emerging markets and fears that U.S. stocks were overvalued after a bull run–are not directly related to real estate, recent history demonstrates that exogenous shocks can play an outsized role in roiling the U.S. economy,” he said. 

Yardi Matrix predicted that U.S. multifamily fundamentals will remain strong despite the economic challenges in China and the Eurozone because of the demographic and demand trends that produced historically low U.S. apartment vacancy rates. 

“There are potential upsides to U.S. real estate as well,” Adler said. “One is that the Federal Reserve will maintain low interest rates, which, whatever the general economic impact, has helped to boost commercial real estate values. Another is that the instability elsewhere will lead global investors to allot even more capital to the sector.” 

U.S. apartment rents rose by an average 0.8 percent over the past three months compared to the prior-year period, the same rate as last month, the report said. The order of the top markets changed little, indicating a mid-summer slowdown in rent growth, Adler noted. The top five, 10 and 15 markets were all the same as last month, although the order slightly changed; Portland, San Francisco and Denver remained No. 1, 2 and 3, while Boston rose to fourth from fifth, switching places with Austin. Nationally, rents grew 5.3 percent on a trailing 12-month basis, which averages the past 12 months compared to the prior-year period, a 30-basis-point increase over July. Rent growth remains strongest in the west and the south. Meanwhile, the mid-Atlantic region stayed relatively weak, with Richmond, Va., Washington, D.C.,

Baltimore and Philadelphia claiming the bottom four slots in the ranking. “Dallas, Houston, Austin and San Antonio remain above the long-term average, but growth has cooled,” Adler said. “What’s more, after the price of a barrel of crude oil dropped below $40 (near six-year lows) in late August on weak global demand, it appears that prices are likely to remain low for at least the rest of the year, which could be a blow to job [and therefore apartment rent growth] growth in Texas metros.”