What Drives the US Rental Market?
Yardi Matrix monthly report provides great data and insight into the trailing 3 months activity in the US multifamily market. The latest report shows which cities are best to invest in.
Yardi points out the long term population migration trend to the sunny south and southwest continues to affect rent prices. Markets in the north seem to be cooling, while cities such as Phoenix, Reno, Tacoma, Tucson, San Fernando Valley, Salt Lake City, El Paso, Las Vegas, Orlando, and Atlanta are hot.
Phoenix, Reno, and Las Vegas growth was powered by rent by necessity renters. Boston, Seattle, San Diego, and Chicago were driven by lifestyle renters.
The key statement from the report is “The strength of the national market is demonstrated by the fact that rent growth is less than 2% in only a handful of metros, and the lowest is Houston at 1.6%. No market is even remotely in trouble”
Yardi defines the market in terms of 1) Geography (competitive cluster including standard Metropolitan Statistical Area, submarkets, zip codes, and short radius distance of 1 to 5 miles), and 2) Property Rental Market ratings as per the major renter categories assigned by Yardi.
Yardi expects rent growth nationally for 2018 to sit at 3.3% with stable occupancy rates. Rents grew in a cyclical style this year to where they sit at $1440 per month.
What’s Behind Rental Demand?
Yardi doesn’t discuss the financial drivers of the multifamily housing markets across the US, other than demographics discussed below. They do discuss political risks and how President could stimulate investment in lieu of Democrat opposition or foot dragging.
Yardi explores the renter profiles of the rent-by-necessity and rent for lifestyle drivers of apartment rentals. They found that rent by necessity rental units (3.9%) once again outpaced lifestyle rentals (2.6%). They point out the strong growth in demand for both sectors, however the graphic below reveals are market driven by a lack of apartment housing.
Lifestyle households (renters by choice) have wealth sufficient to own but have chosen to rent. Discretionary households, most typically a retired couple or single professional, have chosen the flexibility associated with renting over the obligations of ownership — from October Yardi Multifamily National Report.
In California, Los Angeles, San Jose, and Sacramento have enjoyed excellent YoY rental price growth, well above the 3.3% average in 2018. You can see more of the report from yardimatrix.com. Yardi Matrix provides a comprehensive range of information on the apartment rental market, via properties of above 50 units and larger in size, in 133 markets.
Learn more about the multifamily rental market, and new growth opportunities you could explore. Is buying furnished apartments and are you up on the best cities to buy rental properties? See the research on what tenants want and what makes tenants happy. Good things to know if you’re hoping to reduce renter turnover.
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