The national average apartment rent fell $1 in September, dropping to $1,219 from $1,220 in August and ending an eight-month trend of all-time highs, according to Yardi Matrix’s Matrix Monthly survey of 123 multifamily rental markets. This is the first national average rent decrease since November 2015.

The “deceleration of multifamily rents” observed by Yardi over the past several months has taken hold as the average rent-growth rate has continued to drop. September’s rent-growth rate was 4.7% nationwide year over year (YOY), down 30 basis points (bps) from July and 200 bps from October 2015’s highs. These slowdowns come after a three-year trend of faster rent growth than wage growth or economic expansion.

Despite the deceleration at the national level, 26 of Yardi’s top 30 markets experienced rent-growth rates of 3% or higher YOY in September. Sacramento’s (Calif.) YOY rent growth was the highest, at 11.0%, followed by California’s Inland Empire and Seattle, both at 9.0%.

Meanwhile, occupancy has stabilized near historic highs, employment rates are increasing steadily, and annual completions for 2016 are expected to reach 360,000. “Significant supply increases” have slowed the rate of rent growth in San Francisco, Denver, and Houston to 2% or less YOY for September 2016. “As supply is absorbed and construction moderates, these metros will likely revert back to a stable long-term growth rate,” Yardi says.

Yardi Matrix's National Average Rent chart for September 2016.
Yardi Matrix YOY Rent Growth - Sept. 2016

Growth by Asset Class

For the purposes of Matrix Monthly’s trailing three-month (T-3) and trailing 12-month (T-12) rent-growth surveys, Yardi divides rental properties into two classes: “Lifestyle” and “Renter by Necessity.” Lifestyle properties attract households who choose to rent despite having enough wealth to own, while renter-by-necessity properties house students, low-income families, military members, and others for whom renting is the best or only option.

On the short-term T-3 basis, multifamily rents grew by 0.2% in September, a 0.3% decline from August. Beyond the current trend of deceleration, Yardi attributes the slower rent gains to “a seasonality effect,” as April, May, and June are the strongest months for rental demand. The Lifestyle segment's growth was flat over this period, while the renter-by-necessity (RBN) segment grew by 0.3%.

Orlando, Fla., saw the strongest T-3 rent growth, at 1.0%, followed by San Diego (0.7%) and Tampa, Fla. (0.7%). San Francisco and Seattle were the weakest performers in this period, owing to increased supply and market stabilization.

On a T-12 basis, multifamily rents grew by 5.9% in September. Portland, Ore., leads this growth period with an 11.9% rent increase, followed by Sacramento, at 11.2%, and Seattle, at 10.6%.

RBN rent growth has outpaced Lifestyle rent growth by 80 bps over the course of the past year, owing to the continued high supply of Lifestyle properties and high demand for affordable units. Denver still has the highest discrepancy in rent growth between the two groups (8.7% RBN versus 4.5% Lifestyle).

Multifamily occupancy rates are still unchanged, at 95.8%, as of August 2016. RBN occupancy was 95.9%, while Lifestyle occupancy was 95.6%.

Trends and Expectations

The current deceleration in rent and rent growth follows the expectations Yardi forecast in July and August. Current YOY rent growth is 4.7%, but Yardi predicts that 2016 will have a 4.5% rent-growth rate overall. Rent growth is expected to continue to slow and continue to stabilize, given that the current 2% to 3% rate of income growth can't support a very high rate of rent growth.

Western metros without much new construction, such as Sacramento and Portland, are still hot, at rent-growth rates of 7% or higher YOY. San Francisco and Denver, both tech-centric metros with a history of high rents and housing supply issues, will each see 10,000+ new units delivered this year, Yardi predicts, with a corresponding drop in YOY rent growth. Houston maintains the slowest rate of YOY rent growth, at 0.9%, but Yardi predicts that the metro’s deceleration may be nearing its end.