Multifamily Rent Growth Went Over the Top And Now Is Sliding Down

Multifamily owners have carefully been watching rent growth numbers for three main reasons. One is getting a sense of profits and return. Next, monitoring financing, because if a deal was recent and based on cheap money and high leverage, chances are the rationale depended on ongoing rent growth to justify low cap rates. And third, if rates go up, as they are, investors and owners might want to know if it’s time to jump.

But multiple sources are noticing rent declines that started in July. A new one from Markerr, covering the top 100 MSAs across the U.S. by total number of employees in an MSA, continues the news: year-over-year rent growth peaked in April and the momentum has been decelerating. In June, the y-o-y rate was about 9%. In July, it was down to 7.7%.

Even so, the average rent hit a new record of $1,612, up 0.6% from June, according to Markerr. That makes sense as what the market is seeing is a slower rate of growth, not an overall drop. So long as the growth rates are above 0%, rents on the whole are going to grow.

Rents grew inversely to the apartment size. Single bedroom rents were up 8.3%, while two-bedroom unit rents grew by 7.9%, and three-bedroom, 5.2%.

However, there are growing patterns. An important statistical point is that out of the 100 metros, 43 had July year-over-year growth above the U.S. average, meaning that 57 didn’t. In a normal distribution, you’d expect the average and the mean—the middle point—to be about the same.

So, there’s a larger portion below average, suggesting a heavier weighting among those seeing slower growth, while some portion of the top is doing well enough to drag the average upward.

Out of the 100 MSAs in the study, the top ten rate growths were “dominated by those in Florida and the Carolinas,” while the double-digit growth that helps buoy averages happened in 23 out of the hundred.

There are also signs that increased pushback from tenants is bound to happen. Florida has seen extremely strong rent growth. But tenant incomes haven’t kept pace and many renters in the state are becoming more rent burdened. Miami saw an absolute change in rent-income ratio of 7.6%, comparing the second quarter of 2022 to the same period in 2021. Naples, 6.1%. Cape Coral came in at 5.4%. Orlando, least of the top rent burden increases in Florida, saw 2.7%. That doesn’t sound like ultimately sustainable business.