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Apartment demand fell in the third quarter for the first time in 30 years of tracking and a time when demand for new leases is typically high before slowing in the final three months of the year, according to a new report.
RealPage, a tech platform for real estate owners and property managers, found that 82,095 more units were vacated than filled between July and October.
That was the first time in three decades of tracking that demand fell during the third quarter, and it was only the latest sign of turbulence in the rental housing industry.
“Soft leasing numbers coupled with weak home sales point to low consumer confidence,” said Jay Parsons, head of economics and industry principals for RealPage. “Inflation and economic uncertainty are having a freezing effect on major housing decisions.”
Year-to-date net demand is down by just over 47,000 units, according to the report. Parsons said renters may be waiting to see what happens with the economy before forming new households via new leases.
RealPage found there were likely typical seasonal patterns of people vacating a lease, but that the number of move-ins slowed. Net absorption fell in 119 of the nation’s 150 largest metro areas.
“When people are uncertain, human nature is to go into ‘wait and see’ mode,” Parsons said in the report. “Net new housing demand is dependent on household formation – which drove the 2021 housing surge but appears to have frozen earlier this year.”
This could be the market settling after a period of unusually high renter demand that also drove up the price of rent at rates well above historical averages.
It’s not all doom and gloom for the industry at this point. At 4.1 percent, vacancy was up 1 percentage point but remains low. Rent collection also remains high with about 95.4 percent of market rate renters paying on time, according to RealPage.
Numerous reports have shown a drop in asking rent month-over-month after a period of rent growth that was much slower than last year. Rent fell slightly from August to September, according to RealPage and other reports.
“Small rent cuts aren’t unusual this time of year, and it wouldn’t surprise us to see continued cuts throughout the winter – which is usually the best time of year for renters to find better deals,” said Carl Whitaker, senior director of research and analysis at RealPage.
Economists are now waiting to see what happens in the spring to get a better sense of what might be ahead for the rental market. That will also provide time to see what happens with the broader economy, as jobs and wages have remained stable.
“If jobs and wages continue to hold up as they have and inflation cools to some degree, we should see pent-up rental demand unlocked ahead of the spring 2023 leasing season,” Parsons said.