National Multifamily Report – September 2022
Annual increases dipped below 10 percent for the first time in more than a year, according to Yardi Matrix.
The accelerated rent growth from the pandemic ended in September, according to Yardi Matrix’s latest survey of 140 markets. U.S. rent growth decelerated 150 basis points to 9.4 percent on a year-over-year basis. Average rents remained flat at $1,718 for the second straight month.
The national average occupancy rate in stabilized assets clocked in at 95.9 percent. Although moderating, rent growth still stood at 6.6 percent since the start of the year, while in a typical year in September, rents are only up 2.9 percent. Meanwhile, rents in the single-family rental sector decelerated for the second consecutive month in September, down 170 basis points to a 7.8 percent rise year-over-year. This brought the SFR rate down $7 to $2,081, with occupancy sliding 10 basis points to 1.1 percent.
Rent growth fell below 10 percent for the first time since July 2021. This downward path is partly the result of the cooling economy and the Federal Reserve’s actions to curb inflation. Just nine of Yardi Matrix’s top 30 metros kept the year-over-year rent growth above 10 percent, all in the Sun Belt corridor. The leading markets were Miami (14.3 percent), Orlando (13.3 percent) and Nashville (13.2 percent). Outmigration from gateway metros has reversed, pushed by the strong job market—a Gallup Poll reports that 50 percent of companies use a hybrid working environment while 20 percent back in the office, which induced migration close to office locations. This dynamic is reflected in the annual occupancy rate, with five of the six metros posting increases: San Francisco (70 basis points), New York and Chicago (both 40 basis points), and Los Angeles and Washington, D.C. (both 20 basis points). At 97.9 percent, New York had the highest occupancy rate.
On a monthly basis, rents remained flat in September—Renter-by-Necessity rents rose 0.2 percent, while Lifestyle rents contracted 0.3 percent. The upscale segment posted a strong performance in gateway metros, thanks to the healthy employment market. Lifestyle rents rose in Boston (0.8 percent), Los Angeles (0.4 percent) and Washington, D.C. (0.1 percent), in Miami the rate remained unchanged, and in New York, it decreased slightly (-0.1 percent). Leading metros in monthly rent growth were Sacramento, Boston and Orange County (all 0.7 percent), Los Angeles (0.5 percent) and Nashville (0.4 percent).
Yardi Matrix has introduced two new metrics to the monthly report—lease renewal percentages and renewal rent growth, and rent-to-income ratios. National lease renewals increased for the first time since February, up 60 basis points in August, to 59.1 percent. This translates into a $125 increase in the national renewal rent, from $1,405 in February to $1,530 in August (up 8.9 percent). The peak was 67.6 percent, recorded in October 2021. Philadelphia (69.6 percent), Kansas City (66.2 percent) and Baltimore (66.1 percent) had the highest lease renewal rates in August. Year-over-year renewal rent growth was up 50 basis points, to 10.8 percent in August, an 18.3 percent rise since the start of the pandemic in March 2020. National multifamily rents rose 21.9 percent over the interval. Meanwhile, rent-to-income ratios rose 9 basis points nationally to 29 percent in August—RBN units dropped 3 basis points from July to 30.6 percent, and Lifestyle units recorded a 14-basis-point increase over the month to 27.4 percent.
The stagnation in the evolution of the multifamily market originates in a mix of factors, which also influence each other—the cooling economy, which is slowing household formation, and the shift in migration trends. With the economy cooling, household formation is also hindered. Last year’s record demand, when 600,000 units were absorbed nationally, was fueled by consumer savings collected during the pandemic, from a rebound in jobs and the increase in the average wage. These funds aided individuals to form their own households. This year through August, multifamily absorption dropped to 223,000 units, closer to “normal” values. Overall, Yardi Matrix expects a favorable outlook for the national multifamily market, but the record-high rent growth phase is over.
The average asking rent in the SFR segment rose 7.8 percent on a year-over-year basis through September, a 170-basis-point decline from August. This marks a $7 cut in the average rent, to $2,081. Coupled with occupancy, which decreased 1.1 percent in August, it could point to a softening of the housing market. Of Yardi Matrix’s top 32 SFR metros, occupancy increased in just eight, and nine posted annual rent growth of 10 percent or more. Leading markets in SFR rent growth were Washington, D.C. (39.7 percent), Orlando (35.6 percent) and Toledo (15.1 percent). The outlook for SFR is also positive, more so since 61 percent of homebuyers are priced out of the market, according to Porch.com, which will likely turn many to SFR homes.
Read the full Yardi Matrix report.
