Rental rates on some apartment types slipped in July compared to the same time a year prior, the first time that’s occurred since June 2020 — the height of the Covid-19 pandemic.
Median asking rents for studios and one-bedroom apartments fell 0.1%, two-bedroom apartments fell 0.3% and units with three or more bedrooms fell 2.4% between July 2023 and July 2024, according to Redfin Corp. (Nasdaq: RDFN).
All unit types tracked by the real estate technology company are down at least $50 from the rental-rate highs seen in recent years.
Additionally, several fast-growing metro areas posted significant declines for rental rates and upticks in the percentage of landlords offering concessions — a consequence of robust apartment construction in recent years.
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But it wasn’t all good news for renters. Although rent declines were recorded among different unit-size categories, the median asking rent for all bedroom counts combined actually rose 0.4% year over year in July, according to Redfin.
Concessions on the rise for apartments
At the same time, rental-housing landlords are upping their concessions offerings to remain competitive.
Nationally, 33.2% of rental listings on Zillow offered a concession in July, up from 25.4% last year, according to a recent analysis by Zillow Group Inc. (Nasdaq: ZG).
An economist with Zillow wasn’t available by deadline to provide additional context about the U.S. rental market and concessions offerings.
“Builders have stepped up and built an incredible number of homes in response to soaring rents during the pandemic, and renters are now seeing the benefits,” said Skylar Olsen, Zillow’s chief economist, in a statement. “Rents are still growing, but it’s a far cry from the steep rent hikes of two or three years ago, and renters will find sweeteners being offered by more than half of rentals in some places.”
Olsen noted a slowing job market and lower mortgage rates could mean falling rents if the current trends hold.
Zillow also found the typical U.S. rent grew 0.4% in July, down slightly from 0.5% growth seen in June and 0.6% growth in April and May.
Annual rent growth was 3.4% as of July, compared to 3.5% year-over-year growth seen the month prior.
The overall rental vacancy rate has stayed at 6.6% for four consecutive quarters, according to Redfin. Meanwhile, the vacancy rate for buildings with five or more apartments grew to 7.8% in the second quarter, up from 7.4% during the same three-month period a year earlier.
Sheharyar Bokhari, senior economist at Redfin, in a statement pointed to the “sheer number” of apartments built over the past two years as a key reason for rents holding steady or even declining among some unit types.
In June, 59,200 units nationally were completed in buildings with five-plus units, according to Federal Reserve data. That’s the highest number — by a significant margin — of completions on a monthly basis since the mid-1970s.
Areas of the country seeing the biggest rental-rate declines and most concessions are largely in the Sun Belt, which has also received the most new supply of any region since — and even predating — the pandemic.
More than half of rental listings on Zillow in metro areas like Raleigh, North Carolina; Charlotte, North Carolina; Atlanta; Salt Lake City; Nashville, Tennessee; and Austin, Texas, were offering concessions in July.
The median asking rent in Austin dropped the most of any metro analyzed by Redfin in July, falling 16.9% year over year. Jacksonville, Florida, came in at No. 2, with the median asking rent falling 14.3% annually, followed by San Diego (down 12.7%), San Francisco (down 7.6%) and Tampa, Florida (down 5.9%).
Multifamily loans top of mind
Debt backing multifamily properties across the U.S. is being closely watched as the national apartment market tips into a period of oversupply in some places.
An estimated $669 billion in multifamily loans is expected to mature between 2024 and 2026, Newmark Group Inc. (Nasdaq: NMRK) found earlier this summer.
The delinquency rate of commercial mortgage-backed securities debt backing multifamily properties has inched up every month since April, going from 1.33% that month to 2.63% in July, according to Trepp Inc.
Sharon Karaffa, president of multifamily debt and structured finance for Newmark’s multifamily capital markets division, told The Business Journals in July that much of the debt maturing over the next three years is operating below a 1.25 debt-service coverage ratio, meaning a property’s net operating income can cover its debt service by 125%.
Additionally, a lot of that debt was originated with shorter-term, variable-rate financing, and underwritten to rent-growth projections that were more optimistic than what has actually transpired.
Similar to the office market, which is facing its own distress and dislocation, multifamily borrowers are requesting extensions or modifications to their loans at refinancing.
But Mike Haas, founder and CEO of CRED iQ, recently told The Business Journals that while savvy operators will be able to negotiate modifications or come up with creative financing mechanisms, value-add plays by less sophisticated borrowers meant highly leveraged loans were taken out a few years ago to refurbish properties and raise rents significantly.
Those rental-rate gains have largely not come to fruition since.
Source: “Apartment rents hit a post-pandemic milestone – and more landlords are sweetening their deals”
