March posted a 5.7% increase in national rent prices compared to the previous year following February’s slight year-over-year increase of only 0.5%. But though March had a significant jump compared to 2015, rents were down 20 basis points from February and 70 basis points from January, signaling that growth for the first quarter was actually better last year.
The multifamily industry remains cautious—the current volatility of the market could be a sign that rent growth is beginning to slow, but it's too early tell if growth will be temporary, Yardi says.
Over the last 12 months, national rents grew by 6.3% and Western markets led the rankings for rent growth with Portland seeing a higher than average rent increase of 14.1%. Oregon's largest city was followed by San Francisco (11.0%), Sacramento (10.6%), Denver (10.3%), and Seattle (9.8%) among the top five markets. Portland, however, along with San Francisco, slowed in the first quarter of the year due in part to unsustainable growth.
With a weak spot in the lifestyle renter asset class, Richmond (2.1%), Washington, D.C. (2.2%), and Baltimore (2.3%), are the only three metros that fall below the long-term average of 2.8% rent growth after experiencing the smallest rent growth of 2015.
Seattle, Phoenix, Denver, and Atlanta all proved to be hot markets for rent growth in all asset classes on a three month basis—tracked over the first quarter of 2016—while Houston slowed noticeably and Philadelphia stood out as the only major market with a negative rent growth during the time period. Denver and Seattle continued their momentum from the past 12 months, with Seattle leading the pack and picking up by 1.2% in the first quarter and Denver rising 0.8% in March after a flat month in January. Phoenix and Atlanta both had upswings in rent growth, with Phoenix leaping to 1.0% from 0.2% the previous month and Atlanta rebounding from a negative -0.1% in February to 0.8% in March.
Yardi’s forecasted national rent growth for 2016 is 4.4%, and, while down from 2015, it’s still no small gain.
“We anticipate that some markets will begin to soften as heavy new supply kicks in, interest rates creep up, single-family rentals begin to absorb some of the demand for multifamily, and lack of affordable supply puts a lid on how much renters can pay,” said the report.
But on the plus side, job growth and apartment demand is predicted to be strong in some metros. Richmond and Philadelphia are expected to make comebacks with 1.4% and 1.3% growth for the year respectively, and San Francisco is projected to have the most growth with 10.5%.