The latest forecast estimates average rent growth of 2.3% this year, equaling the average rate from 1995-2016 and actually 10 basis points (bps) higher than the previous forecast’s estimate. This slight increase also comes in the wake of a predicted fall in the job-growth rate to 1.4%, with 2.01 million jobs added to the workforce in 2017.
The scatterplot chart below depicts how the apartment market has changed in the past year. The green dots indicate markets in which the forecasted 2017 rent growth increased from the prediction of one year earlier; the red dots indicate metros where the forecast has been lowered. Except for Los Angeles, Atlanta and Seattle, the “green” metros are secondary markets that have shown a great deal of strength since the start of 2016 – such as Sacramento; Riverside, CA; Warren, MI; and Minneapolis-St. Paul.
Most of the primary markets are “red” – New York; Boston; Philadelphia; Washington, DC; Chicago; South Florida; Houston; and the Bay Area among them. As the chart shows, the largest positive change was 170 bps (in Sacramento), while the biggest negative change was 460 bps (San Jose). San Francisco, Oakland, Houston, Baltimore and New York also dropped by more than 200 bps.
The latest forecast, however, reduced that 2-4% cluster to 80 markets, still two-thirds of the total group. Some 14 markets are now expected to exceed 4.0% rent growth, while a total of 26 metros would fall below 2.0%, including six in negative territory.
Axiometrics forecasts 319,541 units to come to market in 2018, and 295,521 in 2019. The supply levels are expected to tick up slightly in 2020 and 2021, but nowhere near the peaks of 2016 and 2017.
- While average effective rent growth will hit a recent low of 2.3% this year, it is expected to rise to 3.2% in 2018 and 4.1% in 2019 before moderating back to 3.2% in 2020 and 2.6% in 2021.
- Job growth also will increase in 2018 and 2019, to 1.7% and 2.0%, respectively. Like rent growth, this metric is expected to retrench to 1.7% in 2020 and 1.4% in 2021.
- Occupancy is expected to average 94.6% in 2017, rising to 94.8% in 2018 and 95.2% in 2019, exceeding the magical 95% at which a market is considered full. That rate is predicted to fall to 95.0% in 2020 and 94.7% in 2021.
- The total number of building permits issued is forecast to rise to 1.4 million this year, but fall to 1.3 million in 2018 and 1.2 million in 2019. This includes all housing, both single-family and multifamily.