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Multifamily rents finally turned negative in November, experiencing the lowest year-over-year growth since mid-2021, according to the latest Yardi Matrix Multifamily Report. U.S. asking rents saw a $9 decrease last month to $1,719; the 0.5% drop is the largest one-month decline in rents since the global financial crisis.

Yardi Matrix said the deterioration in rents wasn’t unexpected, with the increases over the past almost two years far exceeding normal growth patterns.

“With the economy softening, demand for units slowing, and rising interest rates creating headwinds for housing, multifamily asking rent growth finally took a turn downward in November,” stated the report. “The decades-high inflation rate has left household balance sheets in a weaker position than a year ago, while economic growth is slowing as the Federal Reserve raises interest rates.”

According to the report, average U.S. rents are up 6.4% year to date, and the national occupancy rate has inched down to a still healthy 95.6%. All of Yardi Matrix’s top 30 metros continue to experience year-over-year rent growth; however, recent performance does show some weakness. Almost two-thirds of the 30 metros had negative growth over the last three months, and over 90% experienced negative growth over the last month.

Month over month, the decline in rents was concentrated in the high-end lifestyle segment, which fell 0.8%. Renter-by-necessity rents declined by 0.2% last month.

“Some of the weakness can be attributed to normal seasonal factors, since rents tend to flatten in the winter when fewer people move,” noted the report. “However, the market clearly is feeling the effects of high inflation that caused consumer sentiment to drop and led to less demand for housing.”

According to Yardi Matrix, operators are focusing rent growth on renewals. Renewal rates increased 11.1% year over year through September, up slightly from August, and remained highest in Miami, 20.5%; Tampa, Florida, 19.3%; Raleigh, North Carolina, 18%; and Orlando, Florida, 16.2%. In addition, national lease renewals were 63.8% in September, dropping from the fourth quarter 2021 peak of 68.2%. The highest lease renewal rates were seen in Philadelphia; Kansas City, Missouri; Miami; and Indianapolis. The Bay Area’s San Francisco and San Jose metros were among the lowest.

The report also noted that with higher interest rates eating into deal flow, Fannie Mae and Freddie Mac are unlikely to hit their $78 billion lending caps in 2022. In the first 10 months of the year, the government-sponsored enterprises’ (GSEs’) public filings showed that Fannie Mae had originated $54.7 billion and Freddie Mac originated $51.2 billion.

“There seems to be little chance that the agencies will meet their lending capacity, lending around $70 billion by year-end,” stated the report. “The GSEs have seemingly had unlimited capacity in recent years given the strong demand for multifamily debt and increasing property values. However, market conditions changed rapidly this year as rates increased and economic prospects grew more uncertain.”

For 2023, the Federal Housing Finance Agency has lowered the caps to $75 billion to reflect the current market conditions.

The report also shed some light on the single-family rental (SFR) sector, which is following the multifamily sector’s pattern. National asking rents for single-family rentals fell $5 in November to $2,091. However, 10 metros, led by Sacramento, California, and Washington, D.C., recorded asking rate gains of at least 10% during November.

“Rising interest rates continue to be a big story in the SFR segment, as the drop in home sales impacts when and where people move,” noted the report.