March’s $6 gain marked the first positive change in the average U.S. monthly rent in five months and the most significant gain since last June, according to Yardi Matrix’s Matrix Monthly rent survey report. The average U.S. monthly rent is now $1,312, according to the firm's monthly survey of 121 metro markets.
On a year-over-year (YOY) basis, rents rose 2.7% in March, down 10 basis points (bps) from February and 270 bps from one year ago, when the YOY rent-growth rate was twice as high, at 5.4%.
Much of the recent flat rent growth is seasonal, notes Yardi, as tenants tend to move more when the weather improves and rents typically rise in response to an increase in demand. Supply–demand fundamentals are healthy in most markets, but the metros that do suffer from an oversupply of luxury units and an unmet demand for affordable housing have also contributed to the broader national trend of rent-growth moderation.
Trailing 3-Month and 12-Month Growth
On a trailing three-month (T-3) basis, multifamily rents increased by 0.1%, up 20 bps from the -0.1% rate of change in February. This gain came entirely from properties aimed at “renters by necessity (RBN),” defined by Yardi as households who rent because they are unable to own, for one reason or another, and live specifically in working-class or market-rate units.
Rent growth remains flat in the “lifestyle” class, which consists of households with sufficient wealth to own but who choose to rent in high-end properties.
On the local level, Los Angeles led T-3 growth, at 0.5%, followed by Orange County and the Inland Empire, both in California, at 0.4%. At this time of year, the best-performing metros on a T-3 basis are usually in the Southern U.S. and in California, as those markets don't experience the same seasonality as colder regions, according to Yardi. The Twin Cities region is an exception, with 0.4% growth overall and 0.5% lifestyle growth. Rents declined on a T-3 basis in Houston and Austin, Texas, both high-growth, oversupplied metros, by 0.3%.
On a trailing 12-month (T-12) basis, rents increased by 4.0% in March, down 30 bps from February. At 4.9%, RBN rent growth outpaces the lifestyle sector’s 3.1% rent growth by 180 bps. According to Yardi, oversupply of new luxury completions is driving the widening rent-growth gap between the two sectors: As recently as November, the average T-12 RBN rent-growth rate was 80 bps above the lifestyle T-12 rate of rent growth.
Sacramento, Calif., led local markets on a T-12 basis, with 10.1% rent growth, followed by Seattle (7.5%) and Portland, Ore. (6.8%). Houston reported the weakest rent growth on a T-12 basis, at -0.2%.
On the national level, the occupancy rate remained unchanged in February 2017, at 95.2%. (The Matrix Monthly report’s occupancy data cover the month previous to that of the rent-growth figures.) RBN occupancy also remained flat, at 95.4%, while lifestyle occupancy dropped 10 bps, to 94.8%. Locally, Nashville, Tenn., was the only market where occupancy changed by more than 10 bps month over month, with a 20 bps drop, to 95.4%.
Looking Ahead
Despite the recent gain in the average rent, Yardi Matrix doesn't believe the market will reach the highs of 2015–2016. The firm forecasts a stable, 3% range of rent growth for the rest of the year. Multifamily fundamentals are still healthy in general, and market fundamentals are stable and set to remain so in the current growth cycle.
Upcoming uncertainties in the multifamily market include the economy and its potential effect on unit demand. The Consumer Price Index has reached a recent 2% high; the Federal Reserve has raised short-term interest rates by 25 bps; and the economy has produced over 200,000 jobs per month so far this year. Unemployment remains low, at 4.7%, and labor force participation has grown to 63.0%.
The construction sector added 58,000 jobs in February, or roughly 25% of all new employment that month. Concerns remain about whether the current construction labor supply will be enough to prevent delays or increased costs in high-growth markets, including Houston, Austin, Miami, and Nashville.
If this expansion continues, short-term interest rates may continue to rise, which would raise borrowing rates and put pressure on low property yields. Yardi Matrix does note that interest rates have recently decreased in the face of increased uncertainty about whether the new administration will be able to achieve the economic growth it promised.
