Q1 Multifamily Analysis
Multifamily rent growth has been on a roller coaster ride over the past two years.
Source: Moody’s
Multifamily rent growth has been on a roller coaster ride over the past two years. Pandemic migration and above-average household formation have fueled record level rent growth in the second year of pandemic. However, double-digit annual rent growth was never sustainable, especially given affordability pressures and slowing migration.
As discussed in our Q4 2022 housing affordability study, US median-income households have reached the rent-burdened threshold, paying 30 percent of their monthly income on an average-priced rental apartment unit for the first time in our nearly 25 years of tracking history. Since then, rent growth started to lose steam, bringing much needed relief to renters. Combined with seasonal slowness, asking/effective rent declined by 0.9 percent/1 percent respectively in the first quarter. Whether this will start a downward trend for rent is yet to be seen as a few conflicting forces are in play. On one hand, the labor market softened a little but remains tight, which supported consumer sentiment, especially for lower-income families. On the other hand, as mortgage rates dropped back down to around 6 percent and buyers seeking opportunities with limited single-family housing inventory, demand for multifamily can be shaken up, especially in the Class A space.
At the metro level, asking rents fell in more than half of all primary markets, with Fairfield County (-6.4 percent), Louisville (-3.6 percent), and Greenboro/Winston-Salem (-3.3 percent) recording more than 3 percent decline in the first quarter. As tech layoffs metastasized, metros with well-established tech concentrations[1] started to feel the downward pressure in their multifamily market performance. Over the first three months of the year, only Tacoma (+2.1 percent), Washington, D.C. (+1.6 percent), and Denver (+0.1 percent) had higher asking rent than the previous quarter. Metros with emerging tech presence[2] that once enjoyed exceptional pandemic-fueled rent growth now also experienced rent declines, with the exception of Buffalo (+2.8 percent) and Norfolk/Hampton Roads (+1.2 percent). The top five rent-burdened tech metros – New York (-1.5 percent), Miami (-0.2 percent), Fort Lauderdale (-0.7 percent), Los Angeles (-2.4 percent), and Boston (-0.2 percent) – are now slightly more affordable due to rent declines.
[1] Established Tech Metros: Atlanta, Austin, Baltimore, Boston, Chicago, Colorado Springs, Dallas, District of Columbia, Denver, Fort Worth, Los Angeles, New York, Oakland-East Bay, Raleigh-Durham, Seattle, San Francisco, San Jose, Tacoma.
[2] Emerging Tech Metros: Buffalo, Fort Lauderdale, Greenville, Greensboro/Winston-Salem, Knoxville, Lexington, Miami, Norfolk/Hampton Roads, New Orleans, San Bernardino/Riverside, Ventura County, Wichita, Nashville.
