The national multifamily market continued its strong performance into the second quarter, with the average rent increasing by another $15 in April, to a new high of $1,659, according to Yardi Matrix’s latest survey of 140 markets. The rate of growth moderated by 50 basis points, but remains high at 14.3 percent year-over-year. The average U.S. multifamily asking rent increased by $50 since the beginning of 2022. Demand appears to be slowing in the Sun Belt and West regions, as the average occupancy rate in stabilized properties year-over-year has decreased in four metros—Las Vegas (-0.8 percent), Phoenix and Sacramento (-0.5 percent) and the Inland Empire (-0.4 percent). Meanwhile, New York and San Jose were in the lead, with 2.4 percent gains.
Despite the softening economic growth right after the record year for the multifamily sector, the market continues to post remarkable performance, with the year-over-year growth rate above the 14.0 percent mark for five consecutive months. Still, headwinds have intensified: the U.S. economy contracted by 1.4 percent in the first quarter of 2022—due to surging inflation, ongoing supply chain issues, shrinking business inventories and the omicron outbreak. Moreover, the Federal Reserve will likely maintain its rigid policies that will hinder growth. Still, the demand-supply dynamic for multifamily is strong enough to withstand a modest economic slowdown. Furthermore, the employment market is recovering well and increased consumer spending during the first quarter points to healthy household finances. The for-sale segment of the housing market is likely to be impacted more and keep some renters in apartments, but household formation is anticipated to remain strong.
On an annual basis, asking rents increased by 20 percent or more in five of the top 30 metros. Miami led the ranking with a 24.5 percent year-over-year increase, down 1.7 percent from March. Orlando, Tampa, Las Vegas and Phoenix closed the top five. At the other end of the ranking, performance was still solid: Baltimore (9.3 percent), Kansas City and San Francisco (8.8 percent) and the Twin Cities (4.7 percent).
On a monthly basis, asking rents increased 0.9 percent in April, equal to the March rate. Unlike last month, when rent growth was even between quality segments, in April, Renter-by-Necessity rents rose 1.0 percent month-over-month and Lifestyle 0.8 percent. Metros in the Northeast and the Sun Belt led gains: Boston (2.0 percent), Raleigh (1.8 percent), Philadelphia (1.6 percent), Tampa (1.4 percent) and New York (1.3 percent). The lowest increases in rents were recorded in Washington, D.C. (remained flat), the Twin Cities (0.1 percent) and Miami (0.2 percent). In Orlando and Nashville, asking rents posted a bifurcation based on asset class, exhibiting high increases for the working-class segment and low or contracting rates for upscale units. This could reflect an increased demand for lower-priced units.
In addition to pent-up demand, one of the primary factors bolstering rent growth is the large undersupply of new units, with analysts estimating the U.S. is between 2 million and 5 million units short. Construction activity intensified over the last years—stock expansion was about 400,000 units in 2021 and more than 800,000 units under construction, according to Yardi Matrix data—but various factors hinder development in many markets where demand is high. These include land constraints—such as cost, construction-labor shortage and supply issues— and regulatory hurdles that add time and increase costs by another 32 percent according to the National Multifamily Housing Council, as well as NIMBY protests in metros across the country.
The asking rate for single-family rentals rose 13.2 percent year-over-year through April, to $2,018, 90 basis points below March, and national occupancy remained flat. A wide variation among metros was visible. Orlando (50.3 percent), Miami (31.7 percent) and Las Vegas (20.3 percent) led rent growth. Homeownership is increasingly prohibitive for many due to rising house prices and increasing interest rates. Paired with the rising preference for suburban housing, the SFR sector has seen strengthening demand. Robust supply is underway, and more investors are entering the market, but the outcome remains to be seen, as development and borrowing costs increase.