After four months of what looked like slowing, multifamily rents are back and bigger than ever. The average national rental rate rose $5 this month to a record $1,170, displacing September and October’s peak of $1,166 last year. According to Yardi Matrix’s monthly report for January, year-over-year rent growth was just as robust, with a 6.4 percent increase over last year. Though the report states that Yardi Matrix is forecasting more moderate rent gains in 2016, growth is clearly surpassing the long-term average of 2.8 percent.
West Coast and Southeast markets continue to be the star performers, with Portland, San Francisco, Sacramento and Seattle making strong showings for all asset classes year-over-year. The trailing three months indicate short-term changes, like the slowing of growth in Denver and Houston due to slight dips in the lifestyle asset class. “Some of the metros that have been the biggest gainers over the last year, Denver in particular, have slowed down. San Francisco was negative over the last three months, overall. Those are solid markets, so they’re still going to see good increases this year, but there are signs that the increases are coming down to more moderate levels,” said Paul Fiorilla, editorial director of Yardi Matrix.. Nationally, the trailing three months show an evening out in the lifestyle asset class and an increase for the ever in demand renter-by-necessity class.
The report’s findings for the trailing 12 months are more indicative of overall trends, with double-digit gains reported for San Francisco, Denver and Sacramento. However, the trailing 12 month figures corroborate the trends highlighted in the three month numbers as far as Houston is concerned. “The high end of Houston could be weakening, but there’s still a lot of demand for more affordable, working-class units. Houston is one of these markets where you should definitely keep your eye on the development picture,” Fiorilla said. Cuts in the energy and mining sectors, as well as an oversupply of luxury units, are bringing the city’s numbers down to 3.5 percent in the lifestyle segment, compared to 7 percent in the rent-by-necessity category.
On a macro scale, fundamentals for the multifamily market look healthy. However, Fiorilla said that doesn’t mean investors and developers should throw caution to the wind, as there are always unpredictable economic factors to consider. “The biggest potential pitfall for the multifamily sector this year would be a downturn in the economy. The recent stock market decline prompts fears that it’s a sign of troubles ahead for economic growth. Because the drivers of the declining stock market are largely a result of issues in China and other parts of the world, I think it’s unlikely that the U.S. economy is in jeopardy of falling into a recession this year,” he said.
View the report here.