Heading into the high season for multifamily leasing, the industry is settling back into more historical patterns, according to MRI Software’s “Market Pulse Check” for the first third of the year.
“In general, we expect the summer of 2023 to be muted as economic uncertainty persists, causing renters to be cautious and to seek better certainty in their personal finances,” stated the report.
The biggest headline for the first four months of the year has been a slight decline in the average rent for a 12-month lease. April’s average was 1% below the same period in 2022, and the average change year to date is a slight increase of 82 basis points. However, it’s a 5.8% drop from October’s peak rent price.
“The cost to rent an apartment has attracted much attention, since the late 2021 run-up that saw 20% increases after nearly three years of flat pricing,” said the report. “A slight reduction as we enter the busy season is unlikely to foretell a continued drop, as typical seasonality factors are expected to buoy prices.”
MRI Software predicts price increases in the more traditional range of 3% to 5% for 2023 as compared with last year.
Concession volumes also have continued to drop, receding back to traditional levels. The value of concessions continues to be roughly double that of historical norms; however, MRI Software expects the value to decline if new lease pricing continues to soften.
For the first time since March 2021, the average 12-month renewal rate has surpassed the average 12-month new lease rate by 2%, indicating that the industry is moving toward a more normal, pre-pandemic situation where renewal rates are slightly above new lease rates.
For new leases, MRI Software has seen a steady decline in the percentage of 12-month leases, down 7% year over year, with a corresponding increase in longer 13-, 14-, and 15-month terms.
“This is likely an indicator of residents trying to gain cost certainty in conjunction with operators looking to manage lease expirations,” stated the report.
Twelve-month terms have been consistent for approximately 60% of renewals, with month-to-month terms as the next most popular option at 18%.
From a demand perspective, the MRI Software report finds that traffic is down 18%. However, tours are up 21% and online applications are up 19% year over year, indicating shoppers who are leveraging technology more so than in the past without formally being on the leasing staff radar.
In addition, the report finds that renters continue to favor electronic payments, with volumes more than quadrupling pre-pandemic levels. For electronic payment volume, ACH payments, or electronic bank transactions, dropped to 61% of the mix, while card payments, both debt and credit, neared 40%.