National Patterns and Local Differences in the Housing Market Landscape
New additions, positive demographic trends and an uptick in move-ins market helped stabilize the current market.
In the first quarter of 2024, the addition of new apartment units that came online helped stabilize the national apartment market, along with steady demographics and increased move-ins. Despite a peak in excessive supply, defined as the difference between completions and net absorption on a rolling 12-month total basis in Q4 2023, it has since declined due to strong demand.
The vacancy rate remained unchanged at 5.5 percent over the quarter, reflecting a relatively tight market primarily driven by robust demand. This demand was primarily propelled by the near 7 percent mortgage rates and escalating cost of single-family homes, which deterred many potential first-time home buyers from entering the homeownership market and thus, slightly accelerating the absorption of multifamily construction projects.
Despite market stability, both asking and effective rents remained negative for the second consecutive quarter with a slight 0.2 percent decrease, finishing at $1,823 and $1,723, respectively. While national trends generally align with expectations, the variations at the regional and metropolitan levels are worth observing.
Vacancy rates across the nation vary, influenced by factors such as state size and regional regulations, with some states that prioritize construction often having higher vacancy rates. This quarter, 32 percent of 79 primary metros have recorded higher vacancies than the previous quarter, and nearly 70 percent experienced an annual increase.
Texas emerged as the leader in inventory growth, but twelve primary metros saw vacancies exceed 7 percent during the first three months of the year. Specifically, Dallas had a 7.0 percent vacancy rate, San Antonio at 7.3 percent, and Houston at 7.4 percent. Austin stood out as it experienced the most pronounced vacancy increase by 50 basis points (bps), reaching a double-digit figure of 10 percent, a peak not seen since 2010. Moreover, Austin had the largest annual vacancy point change among the tracked metros, with a change of 2.4 percent as illustrated in Figure 1 below.
Markets with limited land for development typically maintain low vacancy rates, in contrast to others with abundant land that tend to exhibit higher vacancy rates due to more accessible housing expansion. However, extremely low vacancies can disrupt renter mobility and slow rent growth. Aiming for a balanced rate promotes a healthy market equilibrium, offering adequate availability for renters and sustaining market stability and growth.
Metros with higher inventory growth are not only likely to face increased vacancy rates, but may also experience rental market pressure, as an oversupply of units likely suppresses rent growth. Market rent growth is typically negatively correlated with an excess of supply, as it can slow down or even become negative as there is less competition for units and landlords may need to lower rents to attract tenants. This quarter, 63.3 percent of the primary metros tracked faced rent declines, with Austin suffering one of the most significant decreases at 1.4 percent, finishing with an asking rent of $1,550 this quarter.
Besides the previously mentioned Austin, other cities like Washington D.C., Nashville and Raleigh-Durham have reported vacancies exceeding their long-term averages. While robust demographic trends and consistent apartment demand have kept year-over-year performance metrics positive for Washington D.C., and Nashville, it will take some additional time for Raleigh-Durham to overcome the supply—side pressures accumulated in recent years.