Increases in rents jumped from+2.5% in Q2 2018 to +29% in Q3. +29%!!! Such an increase comes after a year of relatively flat rental rates.
Occupancy rates also rose from Q2 to Q3, 95.4% to 95.8% respectively, but nothing compared to this enormous rent spike.
Rental market experts speculate that this reversal in rent prices may not last. Greg Willett, chief economist with RedPage, a real estate analytics firm providing data referenced in this post, said, “Momentum in apartment markets’ performance during Q3…surpassed expectations…still, there doesn’t seem to be a pronounced shift in any big-picture story. We’re about to move into a period of seasonally slow apartment leasing that comes with cold weather months.”
Additionally, demand for rentals may trail the completion of new units, mostly multi-family units, which will come onto the market in just a few months. (Case in point, Manhattan, where developers are taking units of the market due to the recent surge of supply.)
RedPage’s Willett, however, throws out a cautionary tale. “At the same time (all of these new rental units are and will be coming onto the market), product shortages remain for moderately priced rental housing. It’s tough to find available apartments at middle to low-end price points across most markets.” Apartment demand has been and continues to be strengthened by a buoyant economy, the shortage of affordable homes and the increasing numbers of new household formations. According to the US Census Bureau, rental households represent one third of occupied housing in the country.
Also strengthening apartment demand is the 2017 Tax Reform and Job Act that “…doubled the standard deduction and cut deductibility of state and local taxes which reduced the incentive to buy a home,” said Barbara Denham, senior economist with the commercial real estate information company, Reis.
The one constant in all of this…all real estate is local.
Markets that are seeing higher rents include
- Orlando and Phoenix – up 6-7% over last year
- Jacksonville, San Jose, Tampa, Riverside, San Diego, and Salt Lake City – all up more than +4%
- San Francisco saw rents shrinking in 2016-17 but rents are now on the rise again.
- Seattle rent price growth is now less than +2%.
Markets seeing lower rents include St. Louis, Baltimore and Dallas.