Yardi Matrix is remaining cautiously rosy in its outlook for the multifamily sector moving forward, with a new bulletin projecting strong apartment rent growth for the rest of the year despite ongoing turbulence.
May saw rent growth increase slightly month over month, with rents growing by 1.1% compared to 1.0% in April. But year-over-year asking rents saw a May slowdown, dipping from 14.0% from 16.0% in April. Of the markets Yardi tracks, the vast majority continued to see asking rents grow monthly, but some deceleration is setting in, and six markets actually saw asking rents fall from April to May. That group of markets is a diverse one, from gateway areas like Queens and Brooklyn in New York City (Yardi tracks New York’s boroughs separately) to coastal regions like Honolulu and the southwest Florida coast to small Southern markets like Macon, Georgia, and Jackson, Mississippi.
It’s clear that the rest of the year will present a mixed bag, per Yardi, with inflation at a 40-year high. The Federal Reserve, in its ongoing efforts to corral intense inflation, looks set to continue to ramp up baseline interest hikes and quantitative tightening, pushing the chances of recession higher in 2022 and 2023. Yardi noted that the Fed’s record at tamping down high inflation without triggering recessions hasn’t been stellar, but the stout labor market should “provide some cushion,” Yardi said. Job and wage growth both remain strong, with nonfarm payrolls growing by 390,000 in May.
Despite the elevated recession risk, Yardi economists are optimistic that there remains a less-than-50% chance of recession this year. Should the Fed manage to rein in inflation while dodging a protracted recession, multifamily should stay in a good position, with demand high as rising rates keep potential homebuyers in the renter pool. Low supply, with construction thus far unable to keep up with need, should also continue to provide upside pressure.
“While it will be prudent to keep an eye on these risks, we still believe that we will most likely make it through 2022 without a recession or major shock to multifamily markets,” said Andrew Semmes, senior research analyst at Yardi. “The fundamentals of supply and demand remain strong, and the job market is still hot.
“The rate of increase in asking rents might be beginning to slow down, but growth remains significantly elevated by historical standards. The industry will have to navigate some headwinds, but it is well-positioned to do so.”
One particular headwind to keep an eye on, according to Semmes, is the continued impact of the war in Ukraine. Inflation stateside is already being exacerbated by the drawn-out conflict, given that energy and food are traded on global markets and both Russia and Ukraine are major exporters of energy, grain and fertilizer. Extended price hikes on such commodities have outsized effects on households with lower incomes, compounding affordability issues for housing.