Average multifamily asking rents growth showed a minor increase in October, according to the latest Yardi Matrix Multifamily Report. The average U.S. asking rate was $1,727. Year-over-year rent growth was down to 8.2%, the lowest level since summer 2021 and from its 15.3% peak in the first quarter.
“The inevitable economic slowdown raises questions about when the impact will start to be felt and how much the sector will be affected,” stated the report. “Demand has weakened since the first quarter due to slowing job growth and concerns over the macroeconomic environment. The robust household formation that drove demand in 2021 is no longer in effect.”
The $3, or 0.2%, rent gain came only from the renters-by-necessity sector, which increased by 40 basis points in October. Rent growth month over month was led by New York City, 0.8%; Indianapolis, 0.7%; Kansas City, Missouri, 0.6%; and Portland, Oregon, 0.5%.
“These metros benefit from low levels of new supply that are less than the national average,” the report read. Only four metros in the renters-by-necessity segment saw negative growth.
High-end lifestyle unit gains remained unchanged, but 16 of the top 30 metros saw negative growth. This negative growth was led by Las Vegas, -0.8%; Sacramento, California, -0.6%; and the Inland Empire, California, -0.5%.
While all 30 top metros produced year-over-year rent increases, only five produced double-digit year-over-year growth. These include Indianapolis, 11.8%; Orlando, Florida, 11.6%; Miami,11.4%; San Jose, California, 10.6%; and Dallas, 10.5%. “As the entire market moderates, the outsized rent growth seen in many metros over the past 12 to 18 months is coming down.”
Also cooling from record-level performance, the single-family rental (SFR) sector asking rent was unchanged at $2,088 in October, while the year-over-year increase fell by 160 basis points to 6.6%.
According to the report, the rental occupancy rate has dropped 50 basis points over the past year, but the national 95.5% rate remains above the long-term average. In 24 of the top 30 metros, the occupancy rates of stabilized properties are negative year-over-year, and occupancies have dropped at least 0.5% in 19 of them.
Metros in which occupancy rates have dropped by at least 1% year over year include the Inland Empire, -1%; Tampa, Florida, and Atlanta, -1.1%; Sacramento, -1.3%; and Phoenix and Las Vegas, -1.8%.
As debt costs rise even higher, property sales and new construction have begun to slow. Attention has now been placed on the rapid interest rates growth and the impact on demand and property values.
The report noted, “Still, high rates create a sliver of good news for multifamily. With home mortgage rates up to 7.3% as of early November, first-time home buyers are being frozen out of the market, according to the National Association of Realtors, and will be forced to remain in rentals.”