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Rent and Operating Trends Week of July 24th

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Rent and Operating Trends Week of July 24th

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Inflationary pressures remain throughout the economy; however, a welcome sight may be emerging as oil prices appear to have stabilized around $100 per barrel. While the cost of a barrel of oil remains elevated above long-term trends, the current price reflects a decline from its peak in recent months. For the past 4 weeks, oil has remained range bound between $95 and $110 per barrel.

Economists are focusing on both the Fed and GDP this week. The Fed will likely raise interest rates by at least 75 basis points when their next meeting wraps up Wednesday. With the clear goal of reducing inflation in mind, it would not surprise me if rates went up a full percentage point. Second quarter GDP will be released on Thursday. Another negative quarter would put the economy into recession.

 

Multifamily fundamentals continue to soften, and declining traffic, leases, and occupancy are now commonplace across most major markets. Net effective rents are increasing slightly at the national level, but the deceleration in growth from early 2022 has been swift and significant. Operating fundamentals will weaken as economic conditions remain volatile. Multifamily is a hedge to inflation as rents can be raised as leases expire, however, there is a limit to what renters are willing and able to afford for housing, especially as other components of a household’s budget increase. We will likely see renters choose to live with roommates or downgrade from high-end to more affordable housing.

Key Takeaways – Data as of 07/24/2022

 

Traffic and Leases:

 

  • Traffic and leases both fell slightly last week, as demand for apartments has plateaued.
  • However, 8 metros bucked the national trend, and saw traffic pick up last week. Most were concentrated in the southwest or west coast.
  • The Texas markets continue to lead the nation in leases signed per week. Houston, Austin, and Dallas topped the rankings, as each metro averaged at least 3.3 new leases signed per property last week. Despite record heat and continued strain on utility infrastructure, Texas apartment fundamentals are among the best in the nation.

 

Occupancy and Leased:

 

  • Occupancy rates nationwide fell another 6 basis points last week. While overall occupancy remains above 95%, most markets have seen occupancy rates fall continuously in recent weeks.
  • The nationwide leased percentage fell 2 basis points last week. Leased percentages remain healthy despite the declines, and the spread between leased and occupancy rates at the national level has widened to 140 basis points. Demand has been waning, but the elevated leased percentage provides evidence that the housing market remains tight and should weather the economic slowdown fairly well.

 

Net Effective Rent:

 

  • NER increased 10 basis points nationwide, but year-over-year growth dropped to 7.6%. Despite the continued rent growth, the rapid deceleration in the pace of growth is worth monitoring as we approach the fall and winter.
  • Rent increases were geographically diverse, as the top three markets for rent growth last week were New York, Albuquerque, and San Jose.
  • This speaks not only to the return to major coastal gateway markets, as some workers go back to the office, but also the strength of affordable secondary markets, where lifestyle attraction has taken a higher precedent than job and population density. Further illustrating support for secondary markets; Salt Lake City, Charleston, San Antonio and Raleigh also performed well last week.

 

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