Rent growth expected to cool even more in 2023

Dive Brief:

Yardi Matrix has updated its annual rent forecast, revising its 2023 rent growth outlook down from 3.7%, originally reported in a Nov. 16 webinar, to 3.5% as of early December. The analytics provider owes this move to the likelihood of a mild recession in the near future, according to Andrew Semmes, senior research analyst at Yardi.
Slowing rent growth is already affecting the multifamily market this year. Rents rose 0.16% month to month in October, compared to an average of 0.08% month to month in October over the decade between the Great Recession and the start of the COVID-19 pandemic. Rents themselves remain elevated on a historical basis.
Despite a weakening national market, some areas are still showing strength, causing Yardi to revise its 2022 rent growth forecast from 6.9% to 7.6%. It attributes this increase to the outperformance of particular regional markets, such as the Southwest and Midwest.

Dive Insight:

The economic headwinds present in 2022, including a sharp increase in interest rates brought on by the Fed’s efforts to curb inflation, are expected to continue into 2023. However, consumers aren’t completely pulling back from spending.

Consumer retail sales rose 1.3% in October, the largest jump recorded in eight months, and Goldman Sachs reports households are still working their way through excess savings, according to Yardi’s report. Jobs are strong, with 261,000 new jobs added in October, and the unemployment rate has risen to 3.7%, though it remains near historic lows.

At the same time, interest rates have made home buying less appealing — a trend that Yardi believes should be favorable for multifamily in the event of a recession.

“We do expect a recession to occur sometime in the second half of next year, but so far it appears likely to be relatively mild and short,” said Semmes in the report. “...However, this unfortunate dynamic in the single-family housing market should provide the multifamily sector some measure of protection from the negative effects of a potential recession, as housing demand will be unnaturally tilted in favor of multifamily.”