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In many of the markets that saw explosive growth during the pandemic, new supply coming online will depress rent appreciation this year, according to a special report from Yardi Matrix.

While the national average asking rents grew by 1.6% in 2023, some markets could end the year with slight negative growth. Yardi anticipates stronger growth in the working-class renter-by-necessity segment, as most of the new supply comprises upscale lifestyle units.

There is an expectation that absorption of the new supply will continue performing well in the markets that are receiving a large amount although it may take a year or so for the new supply to be fully absorbed.

The pandemic rent growth boomtowns—including Las Vegas (-2.5%); Boise, Idaho (-2.4%); Phoenix (-2.2%); and Austin, Texas (-1.6%)—saw the largest rent declines in 2023, the report notes. Medium-size cities with large universities were among the top performers. The list includes Madison, Wisconsin (9.5%); Knoxville, Tennessee (8.9%); and Syracuse, New York (8.1%).

As expected for 2023, most of the growth in most markets happened during the first half of the year with month-over-month growth peaking in April before falling in July then dipping into negative territory by September, Yardi says. “It is worth pointing out, however, that that general trajectory is in line with what would normally happen to asking rents sans a pandemic or other black swan event, although the timeline shifted forward by one or two months,” the report reads.

The continued compression in the spread between in-place rents and asking rents is another key story in 2024, the report points out. Yardi notes that most markets still have a large gap between the two, but it will “continue to shrink as asking rent increases remain muted in the near term,” which also predicts that the national economy will “slow significantly for two or three quarters.”

Despite a bounce back in consumer confidence, Yardi says cracks are beginning to show through a decline in spending on luxury goods, falling bank account balances, record-high credit card balances, and substantial increases in delinquent credit accounts.

Because of higher interest rates making servicing that debt more difficult, consumers will have to cut spending to avoid default, Yardi notes. Looking ahead, as a historically large amount of supply goes online, Yardi expects modest growth of 0.8% in average national asking rents in 2024 with large variance across markets and time.

After absorption, Yardi predicts yearly growth to return to the usual 3% to 4% in asking rents experienced prior to the pandemic.