Multifamily Posts Broad Gains; Asking Rents Top $2,000

(Photo courtesy Yardi Matrix, Santa Barbara, Calif.)

Multifamily performance continued its strong run in May, reported Yardi Matrix, Santa Barbara, Calif. In a separate report, Redfin, Seattle, said median monthly asking rents topped $2,000 for the first time.

The report said year-over-year rent growth decelerated slightly to 13.9%, but demand remains robust and broad-based regionally. However, the report also cautioned occupancy data shows signs of possible deceleration, and increased interest rates are creating questions about the durability of property values.

“Multifamily performance continues to outpace every year other than 2021,” the report said.

Yardi Matrix reported the average U.S. asking rent rose $19 in May to a record-high $1,680. Year-over-year growth decelerated by 40 basis points to 13.9%. That’s 130 basis points off the peak last summer, “but still exceptional performance,” the report said.

Demand and rent growth continue to increase throughout the country, the report noted. Rent growth rose at least 10% year-over-year in 26 of Yardi’s top 30 metros. The average single-family asking rent increased by $19 in May to $2,038, as year-over-year growth dropped by 70 basis points to 12.7%. Although the national occupancy rate fell 0.2%, Yardi said the sector will continue to ride strong demand, especially as home sales wane due to higher interest rates.

“Decelerating economic growth and concerns about gas prices and inflation have not eroded multifamily demand much nor slowed down the upward climb of rents,” the report said.

Although the biggest gains were recorded in rapidly growing Sun Belt metros—Miami, Orlando and Tampa are all above 20% growth year-over-year—rent increases and demand were well above trend throughout the entire country. The Twin Cities, at 5.2% year-over-year, was the only metro in the Matrix top 30 with rent growth below 8.7%.

The analysis noted each region has its drivers of demand and rent. “Metros in the Sun Belt and states such as Florida, Texas and Arizona, are benefiting from migration stemming from the inflow of population and jobs,” the report said. “Gateway metros continue to rebound from the pandemic slump, backfilling the renters who moved to suburbs and/or more affordable locales with a new set of households that want an urban experience.”

The report said occupancy rates in San Jose, New York, Chicago and San Francisco rose at least 1.5 percentage points over the past year. But signs of the inevitable cooling may well come from the weakening occupancy rates in some high-growth metros. Seven metros—led by Las Vegas (-1.1% year-over-year), Sacramento and Phoenix (-0.7%)—have seen occupancy rates decline over the past year.

In a separate report, Redfin, Seattle, said the median monthly asking rent in the U.S. surpassed $2,000 for the first time in May, rising 15% year over year to a record high $2,002, on par with April’s annual increase of 15%, but a slowdown from March’s 17% gain.

“More people are opting to live alone, and rising mortgage-interest rates are forcing would-be homebuyers to keep renting,” said Redfin deputy chief economist Taylor Marr. “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.”