Yardi Matrix has reported a $2 drop in the national average monthly rent, now $1,214, in its Matrix Monthly survey of 123 U.S. apartment markets for November 2016. This marks the third consecutive month of decrease for the average U.S. monthly rent, which is down $5 from the cycle peak reached in August 2016. November’s 4.3% year-over-year rent-growth rate is down 10 basis points (bps) from October and 240 bps from October 2015’s 6.7% year-over-year growth rate.

Yardi attributes the decline to the supply–demand imbalance in the luxury apartment sector. New luxury supply has declined by 0.2% on a trailing three-month basis, but the long-term luxury oversupply has impacted market performance in many metros. A seasonal slowdown may also be at play, given that rent growth usually slows or reverses during the holidays, when fewer renters are moving.

The report continues to emphasize the current strength of the rental market despite this downward trend. “Rent growth remains 200 basis points above the long-term average, and fundamentals are strong,” Yardi says. “The occupancy rate for stabilized properties—at 95.8%—has moved only slightly despite the addition of 300,000 new units in 2016. That reflects robust absorption in most metros that we expect will continue.”

Growth by Asset Class

For the purposes of tracking rent growth on a trailing three-month (T-3) and trailing 12-month (T-12) basis, Yardi divides its rental property data into two classes: “lifestyle” and “renter by necessity.” Lifestyle properties are aimed at households who “have wealth sufficient to own but have chosen to rent,” according to Yardi, and are usually in a high- or high- to mid-market position. “Renter by necessity” households either lack sufficient wealth to own or are required to move frequently and usually rent in market-rate or low-income properties.

Apartment rents fell 0.2% across all asset classes nationwide on a T-3 basis in November. This marks a 20 bps decline from October. No rent change was recorded by this metric in the renter-by-necessity category, but lifestyle-property rents fell by 0.4% on a T-3 basis.

Twenty of the top 30 metros recorded a drop in T-3 growth overall. Denver and San Francisco were tied for the steepest T-3 drops, at 0.9% each, followed by Baltimore, at -0.7%, and Boston, Seattle, and Portland, Ore., at -0.6%. Yardi notes that most of these metros led the nation in rent growth at the beginning of 2016 and may now be moderating due to an increase in new supply.

T-3 rent growth was led mostly by warm-weather metros that don't usually see a seasonal drop. Orange County, Calif., recorded 0.7% rent growth, followed by Richmond, Va.; Phoenix; and Las Vegas, at 0.3% each.

On a trailing 12-month basis, rents grew 5.5% in November, down 20 bps from October’s T-12 rent growth. The renter-by-necessity sector grew 5.8% on a T-12 basis; the lifestyle sector, 5.0%.

Regional T-12 growth was led by Sacramento, Calif.; Portland, Ore.; and Seattle, while San Francisco’s growth is dropping to more moderate levels and Washington, D.C., and Richmond, Va., show recent improvement. Twenty-two of the top 30 metros were within 200 bps of the national year-over-year average rent growth, which further reflects the nationwide moderation trend.

The national apartment property occupancy rate remained unchanged in October, at 95.8%. (Yardi's most recent occupancy data covers the previous month.) Lifestyle and renter-by-necessity occupancies were both unchanged, at 95.6% and 95.9%, respectively. On a regional basis, only a few metros saw more than a 10 bps change in their occupancy rates: Phoenix’s occupancy rate fell 0.3%, and Denver; San Diego; Orange County, Calif.; Jacksonville, Fla.; and Kansas City, Mo., all fell 0.2%.

Trends and Expectations

The incoming Trump administration will likely bring about a number of real estate policy changes, but in the short-term, market trends will likely be unaffected, the report notes. Apartment demand is based on long-term demographic formation, including the growth of the millennial generation and the increasing number of retiree baby boom renters. The social trends that govern the decision to rent will likely continue, Yardi adds, including later marriages, fewer children per household, lack of household wealth, and a preference for urban environments.

Ten-year U.S. Treasury rates have risen 50 bps in the weeks since the election, which will increase debt financing and may raise acquisition yields if interest rates continue to climb, Yardi points out. Current restrictions on banks and businesses may be lifted by the incoming Republican majority, which Yardi predicts will increase economic growth.

“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,” Yardi says. “The bottom line is that any major policy changes, if there are any, will take time to implement and go into effect.”