Good news for rental property owners! A quick glance at the Matrix Monthly for August reveals that apartment growth in the U.S. rental market remains robust and rents are on the rise as 2015 draws to a close. Rents have exceeded previous records, climbing by $7 to $1,162 per unit. This growth builds on July’s year-over-year increase of 6.5 percent.
Volatility, Low Interest Rates and International Investors
The Yardi Matrix Monthly report shows record highs for U.S. multifamily rent, with the average up by $7 to a $1,162 total, based on a survey of 107 markets. This upwards trajectory matches July’s 6.5% year-over-year increase, indicating that overall growth in this market is expected to continue. Portland hit the top of year-over-year rent growth in all asset classes, hitting just above 16%, followed closely by San Francisco and Denver. Meanwhile, the Northeast continues to dominate the bottom of the list, with Baltimore, Washington D.C. and Richmond all under 2%, putting those cities under the 8-year average of 2.8% for the nation.
While Yardi Matrix anticipates the fundamental elements behind this rise will remain stable, there is some chance recent uncertainty in the equity market could substantially affect national rent averages. While caution in emerging markets, currency depreciation in China, and tentativeness the U.S. stock market are not directly related to real estate, Matrix Monthly recommends keeping an eye on these developments. As the report warns, “recent history demonstrates that exogenous shocks can play an out-sized role in the roiling U.S. economy.”
The report does acknowledge the possibility that “panicked financial markets” could create a kind of “liquidity crisis” that would put a serious strain on the economy and significantly slow U.S. GDP growth. However, the overall conclusion is that the upside associated with these rising rents exceeds any possible precariousness. A predicted Federal Reserve decision to maintain low interest rates combined with global investors redirecting funds into the U.S. property market are two of the main reasons the report cites for its optimistic outlook.
Historic Highs in Portland and New Lows in the Northeast
As stated above, average rents for multifamily units are continuing their steady climb, rising from just above $1040 in June of 2013 to $1162 as of August 2015. This solid escalation continues July’s 6.5% increase, which bodes well for those looking to capitalize on the ongoing growth of the rental market. After weighing all factors and economic influences, the Matrix Monthly report concludes that average rents will continue their upward swing in the coming months though maybe not as significantly as they have in the past.
The increase in rents is broken down by property type in the Trailing Three Months report. That report shows an average of .8% upturn both for high-end “Lifestyle” properties and working-class “Rent By Necessity” properties. Along with this incremental advance, very little has changed in the top markets due, in part, to normal and anticipated mid-summer slowdowns. Nevertheless, the top 15 markets remain the same, with five cities, in particular, leading the nation in rising rent rates:
- San Francisco
In the “Lifestyle” segment of the rental market, Washington D.C. saw a slight decrease at .4% due to a glut in luxury inventory. In nearby Baltimore, “Rent by Necessity” rose .9%. Meanwhile, in Tampa luxury units experienced a larger increase of 2%, continuing Florida’s upward momentum in the luxury sector.
What Renters Can Expect
What residents can get at the national average rent of $1,162 per month varies by city. In Boston, demand pushes out many renters at that price point. Inside of the city center, small studio apartments begin around $1,500. Residents of San Francisco fare slightly better, where studio apartments start at $1,400 just outside of town.
In Portland, renters could move into a 765 square-foot apartment with one-bedroom and one-bathroom in Harbor Court for $1,135. With access to basic finishes and amenities, it’s a decent setup in one of the nation’s most desirable cities.
In Denver, $1,050 offers a one-bedroom, one bathroom apartment in The Park LaFayette that is just below 700 square feet. This centrally located community stands right off of Cheesman, providing pedestrian-friendly to shops, restaurants and activities.
It’s true that everything is bigger in Texas, including the apartment that you could get for $1,162. Iron Rock Ranch of Austin boasts a two-bedroom, two-bathroom apartment sprawled across 1,036 square feet. Private outdoor spaces, hardwood floors and other fine finishes make this one of the best values on the list.
Forecast: Cautious Optimism with Some Volatility
Will rents continue to rise? The catalysts for our historically low vacancy rates are unlikely to change soon. However, the rate of growth could slow down due to anticipated changes in the job market.
Nationally, the report finds that overall rents grew by 5.3% on a trailing 12-month basis, with luxury properties outperforming working-class units by a slim .4% margin. Rent growth remains strongest in the West and Southwest. Previously mentioned Washington D.C. and Baltimore join Richmond and Philadelphia to round out a weaker Mid-Atlantic sector, as those cities claim the four bottom slots in the survey’s ranking.
Texas, on the other hand, remains on the top of the curve in Dallas, Houston, Austin and San Antonio. While the state continues to expand in all property sectors, most signs point to a slightly cooling market due to a drop in crude oil prices and weak global demand. Nevertheless, it is anticipated that the growth seen in the Texas rental market will continue to increase. However, this upswing will be tempered by competing economic factors that will most likely stall economic development and job growth through the rest of the year, eventually spreading to metro regions throughout the state.
Job growth is steady in the top 30 metros, with most exceeding the 2.3% national average. The Inland Empire, Orlando, San Francisco and Dallas seize the top four slots as leaders in the six-month average of year-over-year growth numbers. Nonetheless, it is unlikely that the U.S. job market can continue this progression. Though a severe downturn is also unlikely, a slump is on its way as China devalues its currency and U.S. exports decrease. Variations in the price of oil will influence job cuts in that sector, as these deviations trigger hesitation with employers less eager to hire during times of financial uncertainty.
Quick Yardi Matrix Report Summary
The trend of lofty rent increases will soon plateau as job growth slows and international economies contract though no significant downturn is expected.
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Erica Rascón is an online content developer and contributing editor for The Balance Sheet (the Yardi corporate blog).