Annual rent changes are helpful to know but their downside is that it’s a lagging indicator of what’s currently going on, almost the equivalent of reading yesterday’s news to get what’s happening today.
On the other hand, year-to-date (YTD) rent growth focuses more on recent performance momentum and is better at looking and understanding what’s occurring at a year’s midway point, according to RealPage Market Analytics.
Through June 2023, YTD rents have grown 1.9% across the country to reveal strong demand, RealPage reported. An indication that the market is stabilizing also comes from the fact that occupancy has only fluctuated 10 basis points (bps) since this past January to hit 94.7% in June.
Looking at RealPage’s data over a longer time frame puts more into perspective. The YTD figures are the second weakest since 2010 and post the Great Recession of 2007 to 2009 and also the lowest stemming from the pandemic period. The sluggish start actually began late last year, not just this year. And before it did, the two prior years of 2022 and 2021 are cited as the strongest YTD growth rates since the 2010 very weak year.
Why the change between July and December 2022? Rents contracted over that period by roughly 0.3%, more than the average change. Having rents stall and not ramp up is not uncommon, however, in the second half of a year. Demand often slows then due to seasonal norms, RealPage explained. But in this case, 2022’s fourth quarter was weaker than usual. Rents actually went backward by more than 1% in that period, the biggest downward march since the Great Recession years.
Put into even more focus, the sluggish start in 2023 should not be overly alarming, particularly because of all the new apartment deliveries at the end of this year’s second quarter. The number hit slightly more than 375,000, a 30-year high, and 1.038 million new units are under construction, pumping up what will be available even more.
What Regional Variations Show
The South and West have the greatest supply and as a result are seeing less YTD rent growth momentum versus the Midwest and Northeast where the YTD numbers are a close 3.1% and 3.2, respectively. Those regions also have fewer units under construction; each with about 109,000, according to 2023 second quarter numbers.
In the South, momentum has been slower with averages about 1.5% but because of all its new construction the market is considered strong. The region is posting positive absorption on an annual basis. Its quarterly absorption also is stronger than all three other regions combined. However, the West is the weakest YTD rent growth, particularly in Phoenix, Las Vegas and Salt Lake City. As an example, Phoenix rents fell by 1.1% YTD in 2023, due to rebalancing migration trends and a huge number of new units.
Looking Ahead
Going forward, rent growth may drop more and to negative numbers between next month’s August and through October because of annualized calculations. This may hold in many markets across the country. But overall, the report is optimistic, and explained, “The good news is that demand appears to have turned a corner from the bearish 2022 figures.” It concludes on a strong note, “renter demand remains robust.”