New multifamily-housing figures released over the past few days have shown emerging strain on the apartment sector as the coronavirus crisis continues to take its toll on the U.S. economy.
The spring is normally a key leasing window when observers expect strong rent-price growth, but this year’s numbers have instead exposed the potential start of a downward trend. April 2020 rents, according to the latest Yardi Matrix National Multifamily Report, retreated by 0.5% from March despite gaining 1.6% year over year. The month-over-month loss may not sound like much, but the $8 backtrack represents the largest monthly decline since Yardi began recording the metric, including during the Great Recession.
Twenty-seven of Yardi’s top-30 markets exhibited month-over-month rent-price declines from March to April, with many Northeast and West Coast markets experiencing large decreases. That’s likely due, at least in part, to the far-reaching lockdowns put in place in states like California, Washington and Massachusetts, as well as the early actions enacted by the governments of these states to stem the COVID-19 tide.
Yardi expects weakening rents to continue in these areas, given that many states and cities are taking more cautious approaches to reopening and keeping renters on the sidelines. Because of this, metro areas such as Los Angeles (where rents were down 0.9% month over month in April), San Francisco (-0.8%) and Boston (-0.8%) are expected to continue seeing muted or negative rent growth.
Data from rental website Zumper gathered at the start of May confirmed Yardi’s observations. Zumper’s Crystal Chen wrote on the company’s blog that each West Coast metro among its top-10 markets — five California cities, as well as Seattle — saw rents slide backward on a monthly basis.
Interestingly, according to Zumper, some pricey rental markets have shown resilience in the face of the ongoing pandemic.
“East Coast cities in our top 10 like New York City and Washington, D.C., experienced some growth,” Chen said. “New York City saw one-bedroom rents increase 3.5%, while D.C. one-bedrooms were up 0.9%.”
Meanwhile, although annual rent growth remained positive in the vast majority of the top-30 rental markets tracked by Yardi, signs of year-over-year weakness surfaced in April in historically strong markets. According to Yardi, Orlando led the nation last month in annual rent declines at -0.4%. Notably, Orlando hadn’t had negative annual rent growth since April 2011. The only other city that logged a year-over-year rent decrease was San Francisco (-0.2%), a market that hadn’t seen annual rents slide since August 2010.
On a positive note, rent-collections data through early May has been surprisingly solid during the first full months of the pandemic’s impact. After noting that 94.6% of renters were able to make full or partial rent payments by the end of April, the National Multifamily Housing Council (NMHC) reported at the end of last week that 80.2% of renters did so by May 6. That’s up from 78% a month earlier and only 1.5 percentage points less than the share of renters who did so in May 2019.
“Despite the fact that over 20 million people lost their jobs in April, for the second month in a row, we are seeing evidence that apartment renters who can pay rent are stepping up and doing so,” said Doug Bibby, NMHC president.
“We expect May to largely mirror April, when the payment rate increased throughout the month as financial assistance worked its way to people’s bank accounts.”
Still, with government benefits slow to be disbursed and applications continuing to swell, some renters could soon be faced with tough decisions, Bibby added.
“We are in uncharted waters and will be watching this closely over the course of the month as millions of households will not be able to access unemployment benefits,” he said. “And those who have may find that they are not enough to cover rent plus all the other financial pressures caused by this crisis.”
The consequences of tenants’ widespread inability to cover rent payments could be grim for the multifamily industry, Bibby said.
“The cascading effect of any rent gap is meaningful,” he said. “Apartment owners have $1.6 trillion in outstanding mortgage debt. If they can’t cover their debt, we might see a wave of multifamily foreclosures that could rival the single-family foreclosures that occurred during the Great Recession.”
Such concerns may sway investors moving forward but, for now, the apartment sector’s relative strength kept multifamily lenders active at the start of 2020. The Mortgage Bankers Association announced last week that, despite a year-over-year decrease in overall commercial and lending volumes, multifamily originations actually grew by 15% during the first three months of this year.
