Today’s edition sponsored by: JPI, Authentic, X-Caliber, ButterflyMX and Foxen.
Bouncing back like a partially deflated ball
Through the spring and early summer, the U.S. apartment market continues to bounce back. But not like a big bounce. More like bouncing a partially deflated ball: It’s going up, yes, but just not very high. Not yet anyway.
This chart showing year-to-date rent growth captures the partially deflated bounce-back story perfectly: It shows YTD rent growth (through May) “bouncing” to a four-year high of nearly 2%, according to RealPage data. It’s progress. But it’s still well below normal. In the 2010s decade, apartments averaged nearly 3% rent growth over the same five-month period.
Why?
No, it’s not about weak demand. Apartment absorption isn’t at peak levels anymore, but it’s still above normal. (Of course, it would likely be even stronger if we had better job growth.)
No, it’s not about affordability. Rent-to-income (for market-rate apartment renters) is back to pre-COVID levels as wage growth has topped rent growth for 40 consecutive months.
I know you’re probably tired of hearing this by now, but it’s still all about supply. At least for now. We are certainly nearing the tail end of the supply wave. Completions have dropped off dramatically (quarterly completions in Q1 came in 53% below the peak of Q3’24).
Occupancy rates are slowly ticking upward across the market as new supply drops off and as newly built apartments work through lease-up. Until lease-up numbers normalize and occupancy rates recover, it’ll likely remain a slog. When will that switch? I don’t know. But it’ll obviously vary by market and submarket, and I would expect the path to be bumpy – a two-steps-forward, one-step-back recovery pace.
Notably, CoStar’s Grant Montgomery recently wrote about this same trend. He wrote: “The U.S. apartment market is beginning to stabilize as supply pressures ease, with improving conditions emerging in a growing number of markets.” He points out that some of the fastest-improving markets are high-supplied markets where rents are still falling, but at moderating levels.
Market Highlights
Rent trends range dramatically by market right now, with the common denominator being supply. Where supply is elevated, rents continue to decline – though the pace of declines is moderating. And where supply is very limited, rents are increasing. Here’s how I would categorize some of the big markets:
Booming: San Francisco, San Jose, Virginia Beach
Old news to see San Francisco and San Jose on this list. But Virginia Beach has snuck up on the leaderboard, aided by very limited supply through this cycle plus very stable demand drivers. It’s not just a military town as some wrongly perceive. Also worth noting that the Bay Area boom has spread to the East Bay. Oakland isn’t nearly as strong as San Francisco and San Jose, but it’s now topping 3% for rent growth.
Steady: Midwest, Northeast, Mid-Atlantic
The steady eddies are still steady eddies. New York City has moderated a bit from its red-hot days, but still solid with 3% year-over-year rent growth.
Boston and D.C. remain exceptions to the regional norm, with both posting slight rent cuts over the last year due to local demand-side challenges.
Green shoots: South Florida, Atlanta, Dallas, Orlando, Jacksonville, Salt Lake City
Rents are still falling due to high supply, but at a moderating pace in the low single-digits.
Looking for momentum: The West Coast markets not named the Bay Area
Rents remain pretty flat across the West Coast (aside from Bay) due to pockets of supply and – more impactfully – inconsistent demand. Of those, Orange County is one that has some momentum of late.
It could be worse: Charlotte, Raleigh, Nashville, Las Vegas, Houston
Mixed stories across these markets, where rents are down 2-3.5% year-over-year. Houston’s challenges haven’t been supply, but soft demand – much softer than elsewhere in Texas. Charlotte, Raleigh and Nashville all have heavy supply, but rents haven’t fallen as sharply as peers like Austin or Phoenix.
It’s still rough out there: Austin, Denver, Phoenix, Tampa, San Antonio
It’s the usual suspects, joined in recent months by Tampa – which has lesser supply pressures than the other four, but conspicuously soft demand of late.
Other Highlights
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U.S. Census data shows a big drop in multifamily starts, but this is no surprise to anyone paying attention. Remember: The Census just samples a small share of permit holders to ask what started, and extrapolates from there. Private sector data providers tend to do a much better job tracking starts.
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Apartment List published an interesting research article noting that while young adults are less likely to become homeowners today, a big chunk of them are “not really a renter,” either.
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Yardi Matrix reports: “While the seasonal pattern remains intact, the spring leasing season is generating less pricing power than it did historically.” Yardi writes that “while elevated supply remains the primary driver,” softer leasing and higher inflation are contributing factors.
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CoStar is acquiring Zonda, “a leading provider of new home construction data, homebuilder software, and residential real estate marketplaces, for $800 million in cash.” Zonda covers multifamily as well as single-family homes.
— My Latest Posts on LinkedIn —
Here are some recent posts if you missed them:
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If your city’s policies embrace housing developers yet demonize housing operators, you’re pushing a bait-and-switch strategy that development capital will see through … and you won’t build the housing you claim to support.
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Spring leasing numbers show signs of momentum.
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A new research paper from the Minneapolis Fed shows rent control has been a disaster for St. Paul, shifting a larger share of the tax burden onto homeowners.
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A newly published hit piece on LIHTC affordable housing reads like an unchecked airing of grievances, and misses the mark on an important topic.
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What are the common denominators for apartment projects still breaking ground? Here are the big six.
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Apartment debt originations in Q1’26 came in as the second-largest Q1 on record.
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Even The New York Times editorial board is coming out against rent control.
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While apartment ownership remains as fragmented as ever, the management business is becoming more consolidated.
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New “research” on the role of private equity grossly underestimates the role of private equity, and grossly overstates the implications.
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AvalonBay and Equity Residential are merging. That’s big news, but it also means it’s an uneasy time to be working at AVB or EQR.
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The U.S. House passed its own version of the ROAD to Housing Act, and while it’s better than the Senate’s, it’s still flawed.
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The New York Times tell us that rent is “swallowing up” income, but the reality is a lot more nuanced.
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Affordability is widely viewed as a headwind, but it’s becoming more of a tailwind for market-rate apartments and SFR.
— Now Spinning on The Rent Roll Podcast —
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Thank you to everyone who’s made The Rent Roll part of your weekly routine! New episodes are released every Thursday morning.
Find us on YouTube, Spotify, Apple and Amazon. Recent episodes:
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