Yardi Revises Year-End Multifamily Outlook As Midsize Markets Thrive

Yardi has revised its 2022 year-end outlook for multifamily rent and occupancy upward from 6.9% to 7.6%, as many midsize markets in the Southeast and Midwest continue to overperform.

At the same time, Yardi has lowered its 2023 expectations from 3.7% to 3.5%.

“We do expect some localized turbulence in markets that see a large amount of supply introduced, but how that plays out will largely depend on local job markets and how they fare during the coming downturn,” writes Yardi Senior Research Analyst Andrew Semmes.

Semmes and Yardi Vice President Jeff Adler note that a possibility for a soft landing is still possible, as recent data has “given some hope” to the idea.

“We do expect a recession to occur sometime in the second half of next year, but so far it appears likely to be relatively mild and short,” Semmes writes. Consumer retail spending notched the biggest gain in eight months in October at 1.3%, while unemployment remains at near-historic lows.

The pair also notes that the single-family housing market remains weak, as high interest rates have sidelined many would-be buyers and sellers remain reluctant to lower prices. And “this unfortunate dynamic in the single-family housing market should provide the multifamily sector some measure of protection from the negative effects of a potential recession, as housing demand will be unnaturally tilted in favor of multifamily, since the supply of single-family homes is currently limited due to friction from financing transactions,” the pair say.

Signs of cracks have emerged in the red-hot sector: leasing traffic for new leases was anemic in November, hitting the lowest point in eight years, according to RealPage.

“There is very little net new demand for any type of housing right now, despite strong growth in jobs and wages,” said Jay Parsons, RealPage’s Head of Economics and Industry Principals. “We’ve never before seen new-lease apartment demand freeze up during a period of solid job gains like it has this year. We’re on track to end 2022 with the weakest net apartment demand since 2009. Low consumer confidence and weak household formation tells us Americans are in ‘wait and see’ mode.”

Parsons has suggested the pace of new-lease demand could portend bigger rent cuts this winter as current in-place tenants turn over and consider other options, particularly among Class A rentals.