Multifamily rent growth across the United States will climb 2.5% next year, slightly below the annual average for the past two decades, according to a forecast by one of the nation's biggest buyers of mortgage loans.
A strong supply of units, higher-than-average vacancies and elevated interest rates are expected to temper growth in the near future, according to Freddie Mac, the McLean, Virginia-based government enterprise that provides mortgage-backed securities to private investors. But after multifamily property completions are expected to peak in 2024, high prices in the for-sale housing market may help keep longer-term forecasts positive.
“The economy appears to be on track for a soft landing, although it may be bumpy throughout next year,” said Sara Hoffmann, director of multifamily research at Freddie Mac. “In 2024, the multifamily market may see additional strain from high levels of new supply and continued high interest rates but remains a favorable asset class given the state of the for-sale market and long-term demographic trends.”
After demand went negative in the final months of 2022, early 2023 ushered in a demand rebound spurred by resiliency in the labor market. But high levels of new supply of rentals outpaced that demand, constraining rent growth and decreasing occupancy rates.
Rent growth in 2023 was most muted in regions where rents had increased the most in the two previous years. That includes metropolitan areas across the Mountain West, where rents declined 0.5% from 2023, and the Sun Belt, where prices fell 1.3%. Price declines were also felt along the West Coast, where rents dropped 0.8%.
Metropolitan areas in the Central and Plains rose the most, at 2.7%, followed closely by the Northeast and mid-Atlantic, where rents rose 2.6%.
With more than 1 million units under construction, Freddie Mac expects similar growth throughout 2024 as the market works to absorb new supply. A softer labor market will also weaken demand compared to pre-pandemic levels. But assuming a soft economic landing, secondary and tertiary markets that tend to be less expensive with less construction may outperform higher-priced, oversupplied parts of major markets.
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Source: costar.com