Many Secondary Markets Experiencing Increase in Apartment Asking Rates

Uncertainty about the future of the U.S. economy still clouds prospects for the multifamily sector, according to a Yardi Matrix special report. The company still predicts a downturn, but thinks the Fed is “probably” likely to reduce interest rates by the end of the year.

In line with other recent analyses of the state of multifamily, Yardi noted that markets that saw a big leap in supply during the pandemic period are generally seeing stagnant or falling rents.

Nine out of the 20 markets where rents fell in 2024 are in Florida and Texas, while average asking rents in other high-growth markets like Atlanta, Raleigh-Durham, Austin and Salt Lake City have also slipped since the beginning of the year.

However, many secondary markets in the Midwest, Northeast and South are experiencing increases in asking rents. Rent rises over 2% have occurred in Albany, NY, Milwaukee, Worcester-Springfield, Louisville, Cincinnati, Des Moines, Richmond, Madison, Portland, ME, Lafayette OH, Youngstown, Providence, Northern Virginia and Scranton-Wiles-Barre. Outside the mainland, Honolulu “is a serious positive outlier at 5.7% growth year-to-date.”

Yardi does not expect rapid gains in the oversupplied markets, though they are likely to rebound once new units are absorbed.

Moreover, it still anticipates “a minor downturn/recession in the economy will occur a little later and perhaps last a little longer,” in view of the Fed’s unwillingness to lower interest rates immediately.

“That downturn is coming, though, as cracks in the economy continue to widen—higher credit card balances, higher credit card and auto delinquencies, and more widespread use of short-term financing paint a picture of a struggling cohort of consumers, and more expensive debt servicing costs will continue to make things difficult for those that are already feeling financially squeezed,” the report noted.

According to Yardi, skilled and unskilled labor, as well as healthcare, are the bright spots in the economy due to wide availability of jobs and rising wages. Knowledge-based workers are encountering the opposite, whether because the economy is rightsizing itself or because of the targeted effect of federal programs to stimulate the economy like the Inflation Reduction Act and the CHIPS Act.

As for the future, Yardi predicted stronger rental growth next year and even stronger in 2026 when enough time will have elapsed for the Fed’s eventual rate cuts to meaningfully impact consumer demand and for the current influx of supply to be fully absorbed.