The rental market is entering the new year with a major boost in inventory and cooling rental growth — two factors that are expected to yield a mixed bag of results for landlords and tenants alike.
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The rental market is entering the new year with a major boost in inventory and cooling rental growth — two factors that are expected to yield a mixed bag of results for landlords and tenants alike.
First reported by The Wall Street Journal on Monday, real estate firm CBRE estimates that 1 million apartment buildings are currently under construction, with a large number of these expected to open this year. CBRE said the Sun Belt is the epicenter of the inventory boom, as renters continue to flock to cities like Dallas, Austin, Nashville and Atlanta.
Although supply increases are expected to slow 2024 rent growth to the 1.2 percent to 1.5 percent range, property management software site Yardi said the majority of renters will still be heavily cost-burdened as they’re locked in leases that still reflect the pricing-run of 2021, 2022 and early 2023.
Yardi’s latest data said renters by necessity — the cohort of renters they describe as working professionals who live in low to mid-priced units — still spent 32 percent of their monthly income on rent in 2023 despite the sizeable slowdown in rent growth during the third and fourth quarters of the year.
“Affordability is at a really uncomfortable level for a huge swath of the American population,” Dwellsy Chief Executive Jonas Bordo told WSJ of the rental affordability crisis.
Unsurprisingly, the projected slowdown in rental prices is expected to negatively impact property owners as investors become less bullish about the multifamily market. Data provider MSCI Real Assets said apartment sales declined 68 percent month over month in November. Apartment sales prices slid 12 percent during the same period.
Real Capital Solutions CEO Marcel Arsenault said higher interest rates are also to blame for the pullback, as investors are waiting for the Federal Reserve to begin cutting interest rates later this year. Arsenault estimates rents in “oversupplied cities” could fall by as much as 10 percent over the next 12 months.
“You don’t want to catch a falling guillotine,” he said.
The one silver lining for investors is the single-family rental market, which has been able to better withstand economic headwinds as would-be homebuyers settle for renting a single-family home. While median rent for apartments declined 1.1 percent in November, the median rent for single-family homes grew 2.2 percent.
New Hampshire-based psychiatry professor Karen Fortuna told WSJ she was unable to compete against all-cash buyers in 2020, despite her and her engineer husband’s high incomes. The couple decided to rent a three-bedroom home instead, with the hopes they’d be able to enter the for-sale market within a few years.
Even as the couple battles persistent pest and water issues, their landlord has increased their rent by 25 percent over the past three years. Still, they decide to rent, as the median home price in New Hampshire stretches toward $500,000.
“This is the best option,” she said.
