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Earlier this year, investors began talking about a slowdown in the pace of rent growth.
Now, in all but a handful of markets, they’re talking about asking rent for apartments dropping, and the slowdown is expected to continue, according to a report CoStar released on Friday.
Rent declined or stayed flat from October to November this year in all but six of the top 40 markets, the report reads. And while asking rent for apartments remains higher than what it was a year ago, the pace continued to drop.
The report is only the latest to find that after nearly two years of rapid rent increases, an increase in supply of rentals paired with weakening demand is putting downward pressure on the rental market.
“While sequential monthly rents have decreased for four straight months, we witnessed a slower decline from October to November, with rents down $6 or 0.4% compared to a decrease of 0.6% just 30 days prior,” said Jay Lybik, national director of multifamily analytics at CoStar Group. “As market conditions slip further out of equilibrium with new deliveries far outpacing demand, we expect monthly rents to continue their downward trend.”
As with other areas of real estate, the COVID-19 pandemic darlings for investors are cooling fastest.
Investors who had been targeting the Sun Belt for rental acquisitions are now watching as several Sun Belt markets where rent grew the fastest are now cooling off the fastest.
Year-over-year rents were up 22 percent at the end of 2021 in Las Vegas. They’ve now fallen to 0.4 percent at the end of November. In Phoenix, rent had climbed 20.8 percent to end last year. It was up just 0.4 percent in November.
Rent fell month over month by 1.1 percent in Raleigh, the biggest drop.
Rent remains up nationwide year-over-year, CoStar found. Yet that growth fell to 4.1 percent in November, down from 4.8 percent in October.
None of the top 40 largest markets saw their year-over-year asking rent expand in November, CoStar said.
“Historically, the fourth quarter tends to be slower for multifamily, but we’re witnessing a weaker market overall with the downward rent growth and volatile market conditions,” according to the CoStar report.
“With a potential recession looming in the first half of 2023, the current mismatch between supply and demand appears likely to widen even more,” the report continues. “Therefore, the downward pressure on rents appears likely to continue across the nation, but especially in over-supplied Sun Belt markets.”
Year-over-year rent growth November 2022
- Miami: 7.7 percent
- Indianapolis: 7.5 percent
- Orlando: 7.1 percent
- Cincinnati: 6.9 percent
- San Diego: 6.0 percent
Month-over-month rent growth November 2022
- Palm Beach: 1.7 percent
- Nashville: 0.3 percent
- Miami: 0.2 percent
- Minneapolis: 0.2 percent
- Northern New Jersey: 0.1 percent