The national multifamily market remails strong but is showing signs of slowing according to the latest Yardi Matrix report. Although rent growth remained positive in March, its rate of growth is decelerating after the extraordinary rate of 2021. Most of the rent growth for 2021 started in the second quarter, meaning that going forward the year-over-year growth will likely be reduced although apartment rents will continue their trajectory.
Although the numbers are not final, it is estimated that nearly 2 million new households were formed in 2021, helping to push the multifamily market to its record levels. In 2022, the forecasts estimate that household formation will be closer to the average, which is about 500,000 annually. This reduced pace means that the demand will moderate but still remain high. This growth, although slower than 2021, will be both a healthy rate and also a sustainable one.
Although inflation will not have a direct impact on rents, the rising inflation rate will mean that households have less income available to spend on rent. Inflation impacts renters most at the lower levels of the rental market, which might mean that the Class C properties maintain strong rent growth in 2022. Some of the hottest markets over the last few years have seen demand moderate. In Phoenix, Los Angeles and the Inland Empire, deliveries have modestly outpaced demand, increasing the vacancy rate.
In the first quarter of 2022, the top five metros saw asking rents grow 23% or more. Only three of the top 30 markets had growth of less than 10%. The difference in markets is likely to continue, with the op markets seeing the strongest rental rate growth, even if the growth rate moderates. Additionally, there is likely to be stronger rent growth for Renters by Necessity. In the first quarter, Renters by Necessity saw a national apartment rent growth of 2.0% while Lifestyle Renters saw a 0.1% growth. This bifurcation will likely increase as inflation growth, as Renters by Necessity are more likely to experience greater rent increases.
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