The current rental market shows striking similarities to the year 2000, according to RealPage’s Q3 report, which shows U.S. rental occupancy at 96.5 percent and growing closer to the peak of 96.8 percent posted 16 years ago.
Rental occupancy is on a steady upward pace, the report shows. One year ago, occupancy was at 96.2 percent.
Despite strong demand, year-over-year rental price growth has slowed recently. Annual rent rises as of the third quarter in 2016 was at 4.1 percentage points for the nation’s core 100 metros, a two-year low.
For new leases of the same unit, price growth is at 4.8 percentage points — another two-year low for the third quarter. Price on renewals for the same unit are up 4.9 percentage points, which is the same as the year prior.
“The bottom line is that we’re still in pretty good shape,” Greg Willett, RealPage chief economist, stated in a video report. “I don’t know if I would term this as a significant slowdown in the overall performance — rents are still growing at a strong pace — just not quite to where they were before.”
Compared to the annual rent growth peak of 5.6 percentage points posted one year ago, this quarter’s numbers seem frail. However, juxtaposing with the historical norm of just under 3 percentage points shows prices rising beyond their regular pace.
Rental occupancy growth and price
As of August, 52.5 percent of expiring leases were renewed, similar to last year’s rate. Jay Parsons of MPF Research says most of the new supply is top-of-the-market, leading renters to extend their current housing situations rather than face higher price burdens in the new development market.
Because much of the construction is dedicated toward the high-end of the market, new development isn’t helping pricing in the middle market much, the report shows. Class B Middle-tier rents were up 4.9 percentage points year-over-year, helping boost overall rent growth.
Overall, rents for new residents across the country grew 1.5 percentage points during the third quarter, with annual growth at 4.1 percentage points. The average rental rate for new leases was $1,292 per month during the third quarter.
California was the most present state on the list. Sacramento lead the nation’s metros in rent growth, according to MPF, rising 11.6 percentage points annually in the third quarter, while Riverside-San Bernardino took no. 2, at 9.6 percentage point growth.
Los Angeles tied with Dallas at no. 8, with 6.7 percentage point year-over-year growth, while nearby Orange County was right behind, at 6.6 percentage points.
Meanwhile, Austin posted 3.7 percentage point year-over-year rent growth in the third quarter, while Houston’s growth slowed to just 0.1 percentage points.
After an incredibly hot 2015 and first half of 2016, San Francisco’s rent change dipped into negative territory during the third quarter, with a 0.2 percentage point annual drop.
In South Florida, West Palm Beach’s annual rent rates increased 5.7 percentage points.
Washington D.C. rental growth fell below the national rate, rising 2.3 percentage points annually.
Construction in the multifamily market
Right now, RealPage says properties containing 555,121 units are underway across the nation’s 100 largest metros, which are forecasted to finalize at peak volume midway through 2017.
Over the past year, 261,000 units were completed, with around 78,000 completions in the third quarter alone, the report shows.
“For occupancy to remain that tight, obviously demand has to be really, really strong,” Willett explained.
Austin was no. 4 in apartment construction, with 7.4 percentage point inventory growth in the third quarter. Houston was no. 11 with 5 percentage point inventory growth.
West Palm Beach showed 5.1 percentage point inventory growth, while D.C. inventory growth reached 4.5 percentage points.
Orange County saw 4.4 percentage point inventory growth, while San Francisco featured 4 percentage point inventory growth.
