Rent Survey | October 2016
All data provided by YardiMatrix.
National averages include 119 markets tracked by Matrix, not just the 30 metros featured in the report.
National Average Rents Continuing a trend of steady deceleration, average U.S. monthly rents fell by $3 in October, to $1,216, according to Yardi Matrix’s monthly survey of 123 markets.
Although relatively slight, the decline in rents was the biggest drop in three years, since the average fell by $3 in October 2013. On a year-over-year basis, rents grew 4.4% nationwide in October, a 30-basis-point decline from September and a 230-basis-point fall from the recent high of 6.7%, in October 2015. The decline demonstrates a reversion to more “normal” rent growth that we forecast at the beginning of the year. Given the seasonal nature of apartment rents, the consistency of growth in recent years represents more of a historical outlier than the current moderation.
What is causing the deceleration?
There are a number of factors, but two stand out. One is that the outsize growth of 9-plus percent seen in so many metros through late 2015 and early 2016 has moderated. Sacramento, which tops our survey with a surprising 12.1% year-over-year growth, is the only metro above 7.4%. The other key factor is that the spate of supply of high-end Lifestyle apartments has effectively put a lid on rent growth in some metros, in some cases in tandem with a slowing rate of job growth.
The rate of growth remains higher for lower-cost Renter-by-Necessity units than upscale Lifestyle units. The deceleration is far from being a sign that the sector is overheated. Fundamentals in most markets continue to be strong. Occupancies of stabilized properties are not far from cyclical highs, while the growing population coupled with strong job numbers is producing above-trend household formation that leads to demand for apartments. Some 26 of our top 30 metros are above the 2.3% long-term average for rent growth, and we expect that to continue in most markets. Metros where rent growth has dropped swiftly (i.e., San Francisco, Houston and Denver) have issues with supply, affordability and/or job growth. The data shows a weakness in higher-end Lifestyle properties, where rents fell -0.2%. Rents in the working-class Renter-by-Necessity (RBN) segment grew 0.1%.
The T-3 numbers this month are affected by seasonality, as they compare rent growth during a traditionally weaker period (the beginning of fall) with rents during the spring, which are usually stronger. That said, it has been a long time since so many metros had negative numbers. Almost half (14) of the top 30 metros had negative T-3 growth overall, while 70% (21) had negative growth in the Lifestyle segment. Metros that trailed overall included San Francisco (-1.0%), Seattle (-0.8%), Denver (-0.6%), Boston (-0.5%) and Portland (-0.4%). Lifestyle was dragged down by San Francisco (-1.8%), Seattle (-1.4%), Boston (-1.2%), Baltimore (-0.9%) and Portland (-0.8%). Except for Baltimore, these markets were among the leaders in rent growth earlier this year and have suffered from some combination of too much supply, particularly on the high end; rents growing faster than most tenants could reasonably afford; and a slowdown in job growth. Growth was led by Orange County (0.9%) and San Diego (0.5%), which saw strong gains in Lifestyle rents. Sacramento, Phoenix and Kansas City (all 0.4%) and Tampa (0.3%) also posted steady increases.
West Coast Metros Remain on Top as Average Falls Rents grew at 5.7% on a trailing 12-month (T-12) basis in October, down 20 basis points from the previous month. Renter-by-Necessity once again led the gains, with 6.0% growth, compared to 5.2% for Lifestyle. The T-12 survey represents the change in the average rent during the preceding one-year period compared to the previous one-year period. The top five metros—Sacramento, Portland, Seattle, the Inland Empire and Los Angeles—are all on the West Coast, while the next five—Atlanta, Phoenix, Orlando, Tampa and Dallas—are in the South. Because the metric averages performance over the course of a year, the ranking changes more slowly and reflects the general trend of growth toward the West and South. Houston is an exception: Its loss of energy sector jobs and heavy supply growth put it last in the T-12 rankings, at 1.9% overall and -0.2% for Lifestyle properties. Other weak metros were in the Mid-Atlantic: Richmond (2.7%), Washington (2.9%) and Baltimore (3.1%).
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