Rent growth has stabilized at 2.6% in the first half of 2019 and 3.3% year-over-year, with 2.6% rent growth expected over the full year, according to the Yardi Matrix Multifamily Outlook for summer 2019.
Based on this prediction, 2019 would mark the seventh year in a row that rents have risen above the 2.5% long-term average.
South and Southwest metros are leading the nation in rent growth, due to their fast-growing economies and existing affordable housing, but most metros are seeing strong gains. Rent growth is strong across most markets as of midyear; only a handful saw rent growth of 2.5% or less. Apartments aimed at the middle and lower end continue to lead in rent growth, as new supply is still concentrated in the luxury sector.
However, with the national average rent rising to $1,465 as of June 2019, cost burdens have led to accelerated migrations from high-cost metros in the Northeast and Midwest out to the Southeast and Southwest. According to U.S. Census data, the populations of Austin, Texas; Dallas; California's Inland Empire; Las Vegas; Orlando, Fla.; and Phoenix have risen at least 300% since 1970. Rents in many of these markets are among the fastest growing in recent years; Las Vegas tops the nation in rent growth at 8.4% YOY, followed by Phoenix at 8.1%.
Just over 105,000 units were delivered by midyear, and Yardi expects 265,000 new units to come online over the whole of 2019. While roughly 600,000 units are under construction across the country, the ongoing labor shortage has led to longer construction time frames for some projects. Demand for these units is expected to remain high, owing to job formation and employment rates.
Of the nation’s major metros, Dallas has the highest forecast unit completions at 23,771, followed by Seattle at 16,385 and Miami at 16,176.
Despite these ongoing growth trends, the U.S. economy is said to stand on “shaky ground,” according to Yardi analysts. While the GDP rose by 2.9% in 2018 and 3.2% (annualized) in the first quarter of 2019, the first read of second quarter GDP shows growth slowing to 2.1% (annualized). Yardi expects GDP growth to continue to slow, falling to an estimated 2% for the year.
Low inflation rates and the recent inversion of the Treasury yield curve led the Federal Reserve to drop its Fed Funds Target Rate for the first time since 2008, ostensibly to stimulate the economy. However, it is not certain whether a 25-basis-point rate drop will have an impact on spending. At the same time, rising tariffs have raised costs for U.S. businesses and consumers alike, with little effect on trade negotiations, according to Yardi.
New job formation and employment remain strong, however, and wages are on a steady rise. U.S. employers have added jobs for 105 consecutive months, and unemployment has fallen to a 50-year low at 3.7%. By Yardi’s estimation, a recession is unlikely in the next two years. For the multifamily industry, demographic fundamentals remain robust, which could allow the sector to weather a downturn. Demand is expected to remain strong across all asset classes, though Class A may suffer more than Class B or C assets.
Investor demand for multifamily is strong, and Opportunity Zone deal flow is expected to increase in the second half of the year, as more than 300 funds are raising over $50 billion to invest in them. Transaction volume reached a cycle high of $115 billion in 2018. Demand for debt is high, and the 100-basis-point drop in the 10-year Treasury yield—down to 2% in June—has restored a high premium over borrowing costs. Yardi notes that the apartment sector is seen as a “safe haven” among uncertain capital markets.
