Rental growth rates are returning to pre-pandemic levels in line with historic standards even though “asking rents are increasing at a slower rate than the last two years,” Yardi Matrix says in a special bulletin.
“With a mild recession looming, rent growth will be suppressed at the higher end, with demand falling to lower-end units,” Andrew Semmes, Senior Research Analyst, writes in the report.
Why A Difference In Growth Rates?
The report says the biggest difference in rental growth rates between this year and the years preceding the pandemic is geography.
“Markets that had been performing very well before the pandemic are generally not performing as well post-pandemic because their cost of living had already risen commensurately with rent increases and then work-from-home allowed people to relocate to areas with a lower cost of living while maintaining their income.
“Conversely, markets that had been fairly stagnant pre-pandemic were relative bargains and saw strong growth during the pandemic; that growth is continuing in smaller and midsize markets across the Midwest, South and Northeast,” Semmes writes.
New supply will limit rapid growth
Many new apartments in markets that saw rapid growth during the pandemic “will limit the magnitude of rent increases in the short and medium term, but so far absorption rates have held up, and we expect that to continue.
“High mortgage rates will continue to constrain the single-family market, as homeowners are reluctant to move, and the barriers to homeownership will remain elevated for the foreseeable future, propping up demand for multifamily housing,” the report says.
“There were no major changes to the forecast for this update, and our overall economic outlook has also not changed. We still anticipate a minor recession once interest rate hikes have managed to work their way through the economy, and the restart of student loan payments will financially stress a meaningful number of renters.
“This will likely limit the demand for higher-end rental properties and suppress rental growth in those properties. However, much of that demand will fall to mid-range and workforce housing, which will likely continue seeing strong growth, helping support the overall health of the market,” Semmes writes in the report.
About Yardi Matrix
Yardi Matrix researches and reports on multifamily, office and self-storage properties across the United States, serving the needs of a variety of industry professionals. Yardi Matrix Multifamily provides accurate data on 18+ million units, covering more than 90 percent of the U.S. population. Contact the company at (480) 663-1149.