As the new year sets in and rents in many markets seem to have been trending down, the multifamily sector has been wondering where will rents — and with them, future net operating incomes and also property valuations — will go.
It’s been confusing, with headlines promising some gloom, whether September’s news that apartment rents were seeing their first decline in a couple of years, rents having grown faster in low-coast cities, and, just this month, speculation on how far rents would fall in 2023.
Now for a different take. Markerr expects general rent growth this coming year, with a “forecast across the top 100 markets points to a 4.2% YoY increase in ’23. Although this is a deceleration relative to the crazy-large increases seen in recent years, it is still above the long-term average rent growth of 3.8%.”
How significant that might be falls into a bit more perspective by looking at the company’s year-over-year rent growth data between 2013 and 2023. Eliminating 2020’s -1.3% as an outlier effect of the pandemic, the values ranged from a low of 3.3% in 2013 to a high of 7.3% in 2022. Both the 5.0% in 2015 and 4.6% in 2016 would beat the projected 4.3% for this year, assuming that the estimation will be correct.
However, the 10-year average was calculated with the -1.3% taken into account. Remove that, again as an outlier, and the remaining 9-year average would be about 4.4, or slightly more than the firm projected for 2023.
Markerr used machine learning — which the company says can identify “hidden relationships within components that impacts rent growth” — trained on histories of a number of factors among the top 100 metros. Those included “contributors” to higher rents: single-family permits, population, median gross income, multi-family permits. Also included were “detractors”: home prices, rent, occupancy, and job growth.
“Said differently, single family permits, population growth, and median gross income are driving the forecast higher while home prices and past rent growth are forcing the forecast lower,” the firm wrote.
“Sunbelt and Tertiary markets are projected to outperform the top 100 average, while Coastal and Rustbelt markets will underperform the top 100 average,” the firm said. The projected average growth of Sunbelt markets is 4.9%, versus 4.5% for Tertiary, 3.4% for Coastal, and 3.2% for Rustbelt.
The top five markets were Austin, Texas (8.3%); Des Moines, Iowa (8.2%); North Port, Florida (7.9%); Tulsa, Oklahoma (7.3%); and Wichita, Kansas (7.1%). The bottom five markets were Springfield, Massachusetts (1.8%); Washington, D.C. (1.7%); New Haven, Connecticut (1.5%); Buffalo, New York (1.1%); and Sacramento, California (-0.1%).
Markerr explained the Sacramento ranking as follows: “This gloomy figure is driven by home prices, rent, job growth, single family permits and population.”