Though rent growth is slowing, bringing with it fears of a big tumble, Zillow’s research indicates the median rent is growing faster than it was last year and that current conditions signal stability rather than a crash.
Year-over-year, Zillow’s Rent Index rose 2.1% to $1,440 per month. This is slightly lower than the peak the market hit in 2016/2017, but Zillow Economic Research Director Aaron Terrazas says fear not, this is all part of a market moving toward maturity:
Rather than signaling an impending crash in rents, these relatively small dollar declines from peak should be read as a sign of stabilization in these markets over the past few years as large amounts of newly built rental housing opened for occupancy in waves, helping to balance supply with demand. A majority (17) of these 25 “below-peak” markets hit their highest rent levels (since 2010) between September 2017 and January 2018, before falling off somewhat in recent months. An additional five below-peak markets hit their recent highs between July and October of 2016.
The markets seeing the worst of the decreases are those that built too quickly to fulfill demand with some of the hottest markets seeing strong corrective decreases in rent growth. Seattle, for example, one of the cities with the fastest rent growth in the nation, slowed from 5.8% annual rent growth to 3.3% annual rent growth from last spring to this spring. The U.S. multifamily market was on fire, and now it must cool down, naturally, to create equilibrium in the market.
No developer or owner wants to see rent growth slow down, even if it is good for the market. The good news for developers and owners is that demographics and economic conditions are still on their side. Demand for multifamily product will remain strong, tempering some of the pain associated with slowing rent growth.
Home inventory numbers are still down, and home values are up, meaning it’s not getting any easier for renters to make the transition to homeownership. According to the report, the median U.S. home value rose by a little over 8% over the past year to $216,000 while inventory has decreased by 5.3% YoY.
Though the dollar amount per resident may be decreasing, rest assured that occupancy will not be decreasing any time soon.