Average U.S. rents fell by $1 in November, down to $1,358, according to Yardi Matrix’s Matrix Monthly survey of 121 markets. This marks the second consecutive month of average rent decline, though Yardi notes that rents are stabilizing at moderate growth levels. The year-over-year rate of rent growth is up to 2.5% nationwide, up 10 basis points over October.
Yardi attributes the slight decline to seasonal factors. It maintains that the overall growth rate is steady despite ongoing new supply growth, affordability struggles in major coastal metros, and rent gain pressures in the Pacific Northwest.
While the new supply glut largely accounts for the observed deceleration in rent growth, the construction labor shortage has delayed many projects by an average of four to five months. Yardi tracks about 600,000 units under construction nationally, but only about 300,000 of those units will be delivered in 2017.
Rent growth rates have moderated in Seattle, San Jose, Denver, and Portland, where the tech industry employment that fueled economic growth is starting to slow. Meanwhile, Houston’s rent growth is up 1.2% YOY, marking its second month of positive growth after two years of negative growth.
Occupancy of stabilized units fell 10 basis points month-over-month and 30 basis points year-over-year to 95.5% in October 2017. (Yardi Matrix’s occupancy data is current to the previous month.) While occupancy is relatively stable across the country, a few local exceptions exist, including Nashville, where occupancy fell 1.0% in the past year. Occupancy rates for higher-end Lifestyle assets (95.2%) trail occupancy rates for lower-rent Renter by Necessity assets (95.7%). Lifestyle occupancy has declined by 10 basis points in the last year, while RBN occupancy has fallen 30 basis points.
On a trailing three-month (T-3) basis, which compares the last three months of data to the previous three months, rents fell by 0.1% in November. Lifestyle rents fell by 0.2% nationwide on a T-3 basis, while Renter-by-Necessity rents remain flat.
The bottom five markets with the weakest short-term growth trends are all tech-based economies in the Western U.S. with a high supply of recent new construction: Seattle (-1.0%), San Jose (-0.9%), Denver (-0.5%), Portland (-0.5%) and San Francisco (-0.4%). Yardi attributes this slowdown to the region’s weakening job growth.
Seattle has experienced a 4.4% increase in new supply over the last 12 months, but its job growth has slowed to 2.5% YOY, down from over 3% job growth for 24 months through April 2017. San Jose’s job growth has also fallen by over 100 basis points over the past year, down to 1.4% YOY in October, and Portland’s job growth has moderated to 2.3% YOY from over 3% in 2015 and 2016.
All major markets that recorded positive rent growth on a T-3 basis are concentrated in the Sunbelt, led by Las Vegas and Houston at 0.5%. Houston also led all markets in Lifestyle rent growth on a T-3 basis at 0.7%, as many single-family home owners have entered the rental market while their homes are being repaired.
On a trailing twelve-month (T-12 basis), rents rose by 2.8% nationwide, down 10 basis points from October. Lifestyle rent growth (1.5%) trails RBN rent growth (3.9%) significantly at this scale, as many of the nation’s new apartment deliveries are high-end units.
Sacramento still leads the nation in rent growth at 9.4% on a T-12 basis, followed by the Inland Empire at 5.6% and Seattle at 5.2%. Houston remains the only major metro posting negative rent growth at -1.0%, but Yardi expects a rebound as its recent gains impact the T-12 figure.
