Yardi Matrix reports on rent growth

rent growth

Yardi Matrix released its January 2020 report on the multifamily housing market. The report shows that the fundamentals of the market remain strong but that new deliveries have caused occupancy levels to soften somewhat.

Rents continue seasonal pattern of increase

The report showed that the nationwide average rent was down $1 in January to a level of $1473 per month. The modest change is in keeping with the usual annual pattern where rents rise strongly in the spring and summer but stagnate during the rest of the year. On a year-over-year basis, rents were up by 3.0 percent, in line with recent performance.

For reference, the Bureau of Labor Statistics (BLS) reported that the all-items urban consumer price index (CPI-U) was up 2.5 percent on a year-over-year basis in January. The shelter portion of the CPI was up 3.3 percent in the last 12 months, trailing energy (6.5 percent) and medical care services (5.1 percent) for the fastest rate of growth for the major categories tracked. The BLS also reported that average hourly earnings of all employees on private non-farm payrolls in January were up 3.1 percent over the last 12 months. Average hours worked was unchanged.

Phoenix and Las Vegas lead in rent growth (again)

The Yardi Matrix report focuses on the 30 largest metro areas and ranks them both by average rent growth over the last 12 months and also by rent growth in two sub-classes of apartments. These are the “renter by necessity” (RBN) class and the “lifestyle” (renter by choice) class.

The report identifies major markets with the highest average annual rent growth as Phoenix (7.4 percent), Las Vegas (5.4 percent), Sacramento (5.1 percent), Inland Empire (4.6 percent) and Nashville (4.5 percent).

The major markets with the lowest average annual rent growth were San Jose (1.1 percent), Houston (1.2 percent), Orlando (1.6 percent), San Antonio (2.0 percent) and San Francisco (2.0 percent). Note that all of the top 30 metro areas tracked in this report continued to experience positive rent growth.

Houston once again edged out San Antonio as the metro having the lowest occupancy rate of the top 30, coming in with 92.8 percent. San Antonio’s occupancy rate was 93.0 percent. At the other end of the scale, the Twin Cities had the highest occupancy rate at 96.5 percent, followed by Boston at 96.4 percent. Overall, occupancy was down slightly from the levels in earlier reports.

In the 12 months to January, Charlottte had the highest percentage apartment completions compared to existing stock at 4.7 percent, followed by Denver at 4.6 percent. Seattle dropped to third place with 4.2 percent new apartment completions. The high rate of completions had little impact on occupancy rates in these metros. The occupancy rate was down 0.1 percent in Charlotte, down 0.2 percent in Denver but up 0.1 percent in Seattle over the past 12 months.

The workforce housing (RBN) portion of the market again experienced a higher rate of rent growth in December than did the lifestyle portion of the market. Rents in the RBN portion of the market went up by 3.4 percent, compared to only a 2.7 percent increase seen in the lifestyle product class.

Assessing the risks ahead

Every month, the Yardi Matrix report discusses some aspect of the multifamily housing market. This month it discussed the current economic and political climate and its potential impact on the multifamily property acquisition market. While the economy has seen steady growth driven by a strong jobs market, the potential impact to global growth of the current health scare was cited as a risk factor. The potential of the Democrats nominating a far-left, as opposed to a center-left, candidate for president was also cited as a risk factor that could cool the acquisitions market later in the year.

The complete report discusses some of the smaller markets. It has more information about the larger markets including numbers on job growth, completions of new units and occupancy rates. It also includes charts showing the history of rent changes in 18 of the top 30 markets over the last 4 years. It can be found here.