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Factors Weighing Down Multifamily Rents

Factors Weighing Down Multifamily Rents

Mapped: The Salary Needed to Buy a Home in 50 U.S. Cities and 9 More Real Estate Insights

Vidit Saxena
July 29, 2024

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Macro Trends

Q2 GDP Growth Exceeds Expectations Link

U.S. GDP increased by 2.8% on an annualized basis in Q2 2024, well above market expectations of 2.1%.
Stronger growth was accompanied by easing inflation, with the Core Personal Consumption Expenditures (PCE) Price Index (excluding food and energy prices) closing Q2 at 2.9% annualized vs. 3.7% in Q1.
CBRE expects the U.S. economy to achieve a soft landing this year. However, restrictive monetary policy may heighten the risk to growth.
We expect inflation will continue to ease in H2, helping the 10-year Treasury yield to end the year at 4.0%. We expect to see lower interest rates in H2, which should lead to more real estate investment activity.

Real Estate Trends

The share of ‘stagnant’ listings is rising: Redfin link

In June, 64.7% of homes were on the market for over 30 days, a significant increase from 59.6% the previous year. This is the highest share for June since 2020.
High mortgage rates and unrealistic pricing by sellers are major factors contributing to the rise in stagnant listings. Buyers are hesitant due to elevated prices and await potential Federal Reserve rate cuts.
Texas and Florida cities like Dallas, Tampa, and Fort Lauderdale are seeing the most significant increases in stagnant listings. Dallas, for instance, saw a jump from 52% to 63% year-over-year.

Home Sales Drop for June as Hints of a Buyers' Market Emerge link

Existing home sales fell to an annual rate of 3.89 million in June, marking a 5.4% decrease from the previous month. This drop signals potential shifts towards a buyers' market as inventory increases.
The Midwest experienced the steepest decline with an 8% drop month-over-month, highlighting regional disparities in the housing market. This region's sales were also down 6.1% compared to the same time last year.
The South and West saw decreases of 5.9% and 2.6% respectively, while the Northeast had the smallest decline at 2.1%. This variation suggests differing regional impacts on home sales trends.

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The Factors Weighing Down Multifamily Rents and Profit Margins link

Multifamily rent growth is expected to remain low, with Moody's estimating a growth range of only 1% for the second quarter of 2024. The persistent gap between asking and effective rents, averaging above $90, reflects high concession levels.
Over-supply is a key factor suppressing rents, with housing completions in June 2024 reaching 1.71 million units. Multifamily units saw the most significant increase, with a 26.2% month-over-month growth, the highest since September 1974.
Rising operating expenses are further squeezing profit margins for landlords, leading to challenges in refinancing. This financial strain impacts the attractiveness of properties to lenders and potential investors.

One Chart

Home Insurance Premiums Are Surging