Yardi Matrix: Multifamily Rent Moderation Continues

Average U.S. monthly apartment rents fell slightly in November for the third straight month as rent growth continues to moderate, reported Yardi Matrix, Santa Barbara, Calif.

Rents dropped by $2 in November to $1,214, Yardi Matrix said. This represents a $5 drop from August’s peak. On a year-over-year basis, rents grew 4.3 percent nationwide in November, a 10-basis-point decline from October and a 240-basis-point drop from the 6.7 percent recent high in October 2015.

“Reasons for the decline include seasonality and the ongoing supply-demand imbalance in the luxury sector of many markets,” the company’s November Rent Survey said. “Rent growth normally slows or reverses in the latter part of the year as fewer people move during the holidays.” 

In addition, the high-end rental segment declined by 0.2 percent over the last three months, the report said. “The increased supply of [high-end] ‘lifestyle’ units puts pressure on the segment’s performance, particularly in markets with weakening job growth,” the report said. 

Sacramento, Calif. once again lead the nation in year-over-year rent growth, though its growth rate moderated to 9.0 percent, the report said.

“Despite the [nationwide] moderation, we once again stress that the multifamily market will be in good shape going forward,” the report said, noting that rent growth remains 200 basis points above the long-term average and fundamentals remain strong. 

The occupancy rate for stabilized properties–nearly 96 percent–moved only slightly despite 300,000 new units coming online so far this year. “That reflects robust absorption in most metros that we expect will continue, no matter who occupies the White House,” Yardi Matrix said. “In fact, while the results of the recent U.S. election–with Donald Trump winning the presidency and Republicans gaining complete control of Congress–will bring major change in policies, producing both opportunities and challenges for commercial real estate, the basic strength of the multifamily market is likely ‘baked-in’ by demographics and social trends.” 

But policy shifts will likely affect real estate, the report said. Interest rates are rising; 10-year U.S. Treasury rates increased 50 basis points in the weeks following the election. “That will increase the cost of debt financing and has the potential to push acquisition yields up if rates go much higher,” Yardi Matrix said. “There remains a lot unknown about potential changes to policies of direct impact, such as reform of the government-sponsored enterprises, which are the main lenders on multifamily properties. The bottom line is that any major policy changes, if there are any, will take time to implement and go into effect.”