From June 2017 to July 2017, average U.S. monthly rents rose by $1, to $1,350, according to Yardi Matrix’s Matrix Monthly survey of 121 markets. At the same time, year-over-year (YOY) growth rates fell, to 2.6%, down 10 basis points (bps) from June 2017. Actual rents are up by 2.7% this year to date and have risen every month this year.
Despite virtually flat sequential rent growth and slowdowns still to be expected, the multifamily market remains healthy overall. Yardi notes that rent growth usually tends to moderate in the second half of the year, as it has in July. At the same time, rent-growth gains in the first half of 2017 have already placed the year at an above-average growth pace. The market is also coming down from last year’s unsustainably high rent-growth rates, which peaked at 5.6% in early 2016. By comparison, 2.6% hovers closer to the average YOY rent-growth rate.
Local Markets
On the local level, the nation’s major metros are experiencing outsized to moderate revenue gains. Of the top 30 metros in the Matrix Monthly report, only one, Houston, reported negative rent growth on a YOY basis, and 19 experienced rent-growth increases of 2.0% or more.
Several of the markets that reported 2.0% or less growth are coming off notable rent-growth gains, including Portland, Ore.; San Francisco; and San Jose, Calif. On a trailing three-month (T-3) basis, 25 of the top 30 metros experienced gains of 0.4% or more.
Job growth rates have remained steady this year, fueling the new household formation necessary to drive demand for apartments. Despite a glut of new apartment supply, which is expected to reach 360,000 units in 2017, occupancy rates remain at historically high levels. (Some submarkets are experiencing a localized increase in vacancies, especially in higher-rent "Lifestyle" units, whose landlords may turn to concessions to gain tenants.)
Overall, occupancy of stabilized properties fell to 95.5% in June 2017, down 10 bps from May and 30 bps YOY. (Matrix Monthly’s occupancy data cover the previous month.) Yardi attributes this drop to a 10 bps decline in "Renter-by-Necessity" (RBN) occupancy, which fell to 95.7% in June. By comparison, Lifestyle property occupancy remained unchanged, at 95.2%.
On a T-3 basis, rents rose by 0.5% at the national level in July, down 20 bps from June. Despite this decrease, Yardi reports that long-term numbers look steady overall, given the boost in rent growth during the late spring and early summer. Properties in the Lifestyle sector experienced 0.6% rent growth on a T-3 basis, ahead of the RBN segment (0.5%) for the second consecutive month.
With the exception of Boston, at 0.8%, all markets with above-average gains on a T-3 basis are located in the West or Southeast. Seattle led the nation, at 1.3% growth, followed by Sacramento, Calif., at 1.1%. Houston’s T-3 rent growth remained unchanged during this period.
On a trailing 12-month (T-12) basis, rents grew 3.2% through July, down 20 bps from June. These numbers reflect the ongoing national deceleration trend, as well as the growing rent-growth gap between market-rate RBN properties (4.4%) and luxury Lifestyle properties (2.1%), which is now at its widest in eight years. Yardi attributes this spread to new supply in the high-end market, which has stalled rent growth for luxury units.
Sacramento leads the nation on a T-12 basis, at 9.8%, followed by California's Inland Empire, at 6.4%. Thirteen of the top 30 markets had 4.0% rent growth or more, and only Houston posted negative rent growth in this segment, at -1.4%.
With the addition of the 360,000 new units Yardi Matrix expects to be delivered in 2017, the multifamily market will have added 640,000 new units in just two years. High job growth, an increase in millennial renters, and the popularity of rental properties among downsizing baby boomers have all served to maintain the overall occupancy rate, which dropped only 30 bps YOY through June and remains well above historical averages.
On the local level, however, the Matrix Monthly survey reports well-above-average occupancy declines in Portland, Ore., and Austin, Texas (-0.8%); Nashville, Tenn., Atlanta, and San Antonio (-0.7%); Phoenix, Charlotte, N.C., and Houston (-0.6%); and Los Angeles, Tampa, Fla., Orange County, Calif., Indianapolis, and Chicago (-0.4%). Many of these declines stem from an oversupply of new stock alongside declining affordability.
