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Over the past two years, the average national annual asking rent growth for U.S. apartments decelerated from 10.3% to 0.8%, but the slowdown in rent growth for properties at the top end of the market has been much more pronounced.The average rent growth for four- and five-star-rated multifamily properties peaked at 11.8% year-over-year at the end of 2021 and finished the first quarter of 2024 in the red at -0.3%, a poor performance at the top of the market that was due to developers' over-reaction following the surge in demand in 2021 for luxury units in Sun Belt markets.Completions last year in Sun Belt markets were 78% higher than in 2019, or an extra 100,000 units beyond what was completed when supply and demand were well balanced. Moreover, the number of units expected to be completed in 2024 in these markets is expected to be 50% higher than in 2019 compared to the rest of the major markets, areas that had no change in completions compared to five years ago.https://lnkd.in/gp7cPJ_v

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Demand for mid-priced apartments rebounded in 2023 as rising consumer confidence, lower inflation, strong wage growth and waning recession fears allowed renters in cheaper apartments, and those living in their parent's house, to upgrade their living space or form their own households.The University of Michigan Consumer Sentiment Index, a monthly survey ofconsumer confidencelevels in the United States, increased by 17 points last year from its 40-year low in June 2022 — the largest 12-month change in the history of the index. Over the same period, inflation has decelerated from 9.1% to 3.2%.Moreover, the Atlanta Federal Reserve Bank’s Wage Growth Tracker is 5% faster than the still-elevated inflation. That income growth is faster than inflation gives households more disposable income for goods and services as well as more money to cover rent in a new apartment lease.https://lnkd.in/gyUTUb5x

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Over the past nine years, the time it takes to construct a multifamily building increased from 18 months to just over two years, compounded by supply chain issues and work stoppages during the pandemic.The data show a bump in completion times, particularly in the second half of 2022 and beginning of 2023. However, construction timetables also rose in 2016 and 2017, slowly gaining momentum until the start of the pandemic.The reason for this pre-pandemic rise and the continued elevated construction schedules is related to a shift in the type of apartments being built. In 2015, 42% of completed units were in garden apartment projects. However, by the end of 2023, that percentage decreased to 23%, as more complex projects such as mid-rise and high-rise building dominated the pipeline.https://lnkd.in/gGCMFdjq

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Multifamily property had decelerating rent growth in the past two years after hitting a national record high of 10.7% at the start of 2022. Rent growth finished 2023 barely positive at 0.7%, with the pullback tied to new supply outpacing demand and the vacancy rate rising almost 300 basis points to 7.5%.While national rent growth may remain below 1% to start 2024, slowing completions combined with growing demand could set the stage for rent growth to begin accelerating. After hitting a 40-year high of 565,000 units in 2023, completions in 2024 are likely to pull back by 20% to the mid-400,000 range. At the same time, demand appears poised to expand above 400,000 units if the economy avoids recession and potential new renters feel more confident in signing an apartment lease.https://lnkd.in/gJewyq7n

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After hitting a 40-year high for completed units in 2023, the U.S. multifamily market is expected to see a 25% pullback next year that should help balance out the market.Roughly 590,000 units were completed last year, according to CoStar data, though only 444,000 units are projected to come on line in 2024. While this easing of new builds would likely be well-received by owners and property managers, it is still more than the five-year, pre-pandemic annual average of 360,000 units.The projected slowing in completions would come none too soon given that the past two years of construction outpaced demand by 607,000 units, pushing the national vacancy rate up from 4.8% to 7.6%. Yet if absorption — the difference in move-ins versus move-outs — continues rising as it has throughout 2023, and with the 2024 delivery schedule slowing, the multifamily supply-demand imbalance could move toward equilibrium.https://lnkd.in/gSxEkvtw

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The single-family housing market has been in retreat throughout 2023, as sales of existing homes hit their lowest level in 13 years. Sales peaked at an annual rate of 6.5 million in February 2021 and dropped to 3.8 million this fall, a decline of 42%.Moreover, sales have fallen by a further 17% since the beginning of the year. Higher prices and rising mortgage rates have made purchasing a home unattainable for many potential buyers. Mortgage rates have risen from a record low of 2.6% in 2021 to just over 7% as of this writing. At the same time, the median price for a single-family home hit an all-time high of $394,000, as inventory remains very tight.Given the state of the single-family market, it would be easy to assume that the multifamily rental market should be benefiting as a housing substitute, but that is not the case.https://lnkd.in/g8tBCk9r

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The multifamily sector rebounded strongly in 2023, recovering from a muted 2022 when demand even fell into negative territory in the fourth quarter.Absorption, the change in the number of occupied units, reached 320,000 this year, double the pace seen 12 months ago. Stronger consumer confidence, easing inflation and no immediate signs of recession all contributed to more households forming and seeking out rental properties.However, even though overall demand increased appreciably, the national average vacancy rate for multifamily property continued rising as supply outpaced demand in each quarter of 2023. The national vacancy rate jumped 100 basis points to 7.5% by year-end and rent growth slowed to a crawl at just 0.6%.Further analysis shows that the top end of the market has been the main source of slowing rent growth. The average vacancy for four- and five-star-rated apartments rose by 150 basis points in 2023, to 10.4%. At the same time, vacancy in mid-priced properties rose only 110 basis points to 7.1%. Moreover, rent growth in the luxury market fell by 0.5% over the past year, while three-star rent growth remained positive at 1.4%.https://lnkd.in/gwzuCbbZ

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A dramatic acceleration of multifamily rent growth in 2021 and into early 2022 highlighted concerns of rental affordability, prompting calls for rent control. But since late 2022, apartment rent growth has slowed dramatically and, in some major markets across the nation, even dropped.This roller coaster performance resulted in a handful of markets seeing outsized rent gains. In contrast, others have average apartment rents below where they would have been under more typical rent growth projections before the pandemic hit.https://lnkd.in/d-SbHeZE

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Over the past two years, the national vacancy rate for U.S. apartments has increased from 4.7% to 7.2%, driven by eight straight quarters of supply outpacing demand.Of the top 10 markets with the largest jumps in vacancy over that time, the average vacancy rate increase has been a whopping 560 basis points. Jacksonville, Florida, had the biggest boost, with its apartment vacancy rate skyrocketing by 820 basis points to 13% at the end of the third quarter. Nine of the top 10 markets in terms of vacancy expansion are in the Sun Belt.The supply/demand imbalance has been most heavily concentrated in the top price point, causing the vacancy rate for four- and five-star-rated properties to rise by 330 basis points to 9.9% over the past eight quarters, a much faster pace than the national apartment vacancy as a whole.https://lnkd.in/gTfwCwJM

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