Analysts Expect Rent Growth to Slow in 2019

According to this article in the Wall Street Journal, industry analysts expect slower rent growth for apartments across the US in 2019. A key factor is that more units are expected to come online this year than we’ve seen in any year for three decades. From the article:

Developers are slated to complete another 319,000 new units in 2019, up from last year’s still-aggressive figure of 287,000 units. That is the largest influx of new apartment supply in roughly three decades.

Filling those units could be particularly challenging if the economy begins to slow as expected.

“We certainly saw we can handle that [much supply] as long as the economy is producing 200,000 jobs a month, but that’s realistically not the expectation for next year,” said Greg Willett, RealPage’s chief economist.

As has been true for the last ten years, the pace of construction in the Piedmont Triad has lagged that of most of the country, including our neighbors in Raleigh and Charlotte, so this market may not see the same slow down that’s anticipated for other markets.

In Some Markets Home-Price Increases Greater Than Rent Growth

For the first time in years the cost to buy a home is rising faster than rents. From the Wall Street Journal:

Home-price appreciation is outpacing rent growth in all 23 of the metropolitan areas tracked by a national index produced by Florida Atlantic University and Florida International University faculty.

The housing market shifted sharply in favor of buyers and away from renters in major U.S. cities four years ago as home prices plummeted and rents began a steep climb. But that situation is now changing…

Home prices jumped 5.5% in September compared with a year earlier, according to S&P CoreLogic Case-Shiller U.S. National Home Price Index. Rents in the third quarter increased 3% compared with a year earlier, according to apartment-tracker Axiometrics Inc.

Apartment Occupancy Highs Continued in August

Well, the apartment market is still on a tear. From Multifamily Executive‘s reporting on Axiometric’s report:

August tallied an effective rent growth rate of 5.1%, which was the seventh straight month that rent increases came in above 5%. That growth rate was an eight basis-point decline from July, but well above the August 2014 mark of 4.1%. 
The year-to-date growth rate hit 5.7% in August, which was the highest mark since the recession. Axiometrics cautions that this number could decline in coming months since it fell in September and October of previous post-recession years.
Helping push rents was occupancy, which hit 95.4% in August. That was the highest rate since at least April 2008 and the sixth straight month the rate was 95.0% or higher.
“As apartment occupancy continues to increase, landlords don’t need to offer as many incentives to fill their vacant units,” said Stephanie McCleskey, Axiometrics’ vice president of research in a press release. “The national concessions rate the past two months has been the lowest since the Great Recession. August’s 0.5% rate was the equivalent of $5.80 per month discount.”

National Rent Growth Slows, Occupancy Up

From Axiometrics:

Axiometrics Inc., the leading provider of apartment data and market research, reports that at the national level annual effective rent growth slowed to 3.2% in the second quarter of 2013. For comparison, annual effective rent growth in the second quarter of 2012 measured 4.0%. Further, Axiometrics’ data indicates that the effective rent growth rate has slowed for eight consecutive quarters as many Metropolitan Statistical Areas (MSAs) are decelerating from very strong growth the previous three years. Peak annual rent growth at the national level during this current cycle was 5.3% in July 2011…

While the national growth rate has been slowly decelerating over the past eight quarters, it should also be noted that the current growth rate is still above the long-term average of 2.1%.

Occupancy at the national level remained strong, measuring 94.7% in the second quarter of 2013. A year ago the occupancy rate stood at 94.3%. The improvement in occupancy has occurred despite an increasing wave of new apartment supply.

WSJ: Rent Growth Showing Signs of Cooling Off

From the 4/3/2013 Wall Street Journal:

 The nation’s average monthly rent came in at $1,054, up 0.5% from the previous quarter and up 3.4% from the year-earlier period, marking the slowest growth rate since the end of 2011, according to a report to be released Wednesday by Reis Inc., a real-estate research firm. The national vacancy rate, which hit 8% in the aftermath of the financial crisis, fell to 4.3% from 4.5% in the fourth quarter.

Landlords have profited in recent years amid a combination of stable supply as few new apartments were built and solid demand from consumers unable or unwilling to buy homes. Rental rates have climbed more than 9% since bottoming in late 2009…

Industry watchers are increasingly concerned that the multifamily apartment sector may have peaked. “There’s not a lot of room to keep pushing rents right now,” said Ryan Severino, a Reis senior economist. “It’s becoming unsustainable.”