Jay Parsons’ Post

U.S. apartments added 257k net new renters in the first half of 2024 -- the 2nd-strongest first half of a calendar year in 20+ years. It's yet another reminder that for all the challenges facing multifamily operators this year, fundamental demand ain't one of them. Of course, despite that strong demand, there's still moderately elevated vacancy + zero rent growth nationally. Why? Because we added FAR more supply in the first half of 2024 than we did in any first half in 40+ years. Completions tallied 284k units, according to RealPage, which is nearly 3x the 2000-2019 average. Yet it's still remarkable that the supply/demand gap wasn't more than it was (284k versus 257k units), considering the historic surge in completions. What's driving the demand boom? 1) Clearly, renter household formation is rebounding again following softer numbers in 2022-23. Demand was somewhat surprisingly tepid in those years despite strong job growth and wage growth, likely due to peak consumer inflation convincing would-be householders to hit the pause button. But inflation sans (official) shelter hovering back around 2% AND apartment rents flat AND continued solid job/wage growth (especially among young adults) appears to have lured a lot of folks off the sidelines. 2) Supply creates demand? Well, sort of. The supply boom (coupled with attractive concessions) appears to be unleashing pent-up demand for newer apartments. Apartment demand is technically absorption, and you can only absorb what is available. So when more units become available, absorption potential goes up. That's why supply and demand tend to be correlated, and that's happening again in 2024. 3) Market-rate apartment affordability is shifting back to a tailwind again. Not everyone will agree with this, but they're looking at the wrong data. When we drill down into market-rate, professionally managed apartments, there's no doubt: Wage growth has outpaced rent growth for about 18 months, so rent-to-income ratios have steadily shrunk back toward pre-pandemic levels, according to RealPage data. (Public REITs have reported similar positive trends.) We'll likely get all the way back there before the end of 2024. Improved affordability widens the demand funnel across the price spectrum -- a win/win for renters and operators. 4) Fewer move-outs to purchase. This one is a bit complicated, as some folks will want to assign this one outsized credit. Remember: Most stymied, would-be homebuyers are already renters. So it doesn't explain 257k net NEW renter households. But because net absorption is move-ins minus move-outs ... and because we're seeing fewer folks move-out to buy a house ... that does play a role. Some will end up renting a single-family home instead as life stages change, but there's no doubt there's some impact for apartments, too. Will hot demand continue in the second half of 2024 as supply peaks before sliding back in 2025? #multifamily #apartments #housing

U.S. apartments added 257k net new renters in the first half of 2024 -- the 2nd-strongest first half of a calendar year in 20+ years. It's yet another reminder that for all the challenges facing multifamily operators this year, fundamental demand ain't one of them. Of course, despite that strong demand, there's still moderately elevated vacancy + zero rent growth nationally. Why? Because we added FAR more supply in the first half of 2024 than we did in any first half in 40+ years. Completions tallied 284k units, according to RealPage, which is nearly 3x the 2000-2019 average. Yet it's still remarkable that the supply/demand gap wasn't more than it was (284k versus 257k units), considering the historic surge in completions. What's driving the demand boom? 1) Clearly, renter household formation is rebounding again following softer numbers in 2022-23. Demand was somewhat surprisingly tepid in those years despite strong job growth and wage growth, likely due to peak consumer inflation convincing would-be householders to hit the pause button. But inflation sans (official) shelter hovering back around 2% AND apartment rents flat AND continued solid job/wage growth (especially among young adults) appears to have lured a lot of folks off the sidelines. 2) Supply creates demand? Well, sort of. The supply boom (coupled with attractive concessions) appears to be unleashing pent-up demand for newer apartments. Apartment demand is technically absorption, and you can only absorb what is available. So when more units become available, absorption potential goes up. That's why supply and demand tend to be correlated, and that's happening again in 2024. 3) Market-rate apartment affordability is shifting back to a tailwind again. Not everyone will agree with this, but they're looking at the wrong data. When we drill down into market-rate, professionally managed apartments, there's no doubt: Wage growth has outpaced rent growth for about 18 months, so rent-to-income ratios have steadily shrunk back toward pre-pandemic levels, according to RealPage data. (Public REITs have reported similar positive trends.) We'll likely get all the way back there before the end of 2024. Improved affordability widens the demand funnel across the price spectrum -- a win/win for renters and operators. 4) Fewer move-outs to purchase. This one is a bit complicated, as some folks will want to assign this one outsized credit. Remember: Most stymied, would-be homebuyers are already renters. So it doesn't explain 257k net NEW renter households. But because net absorption is move-ins minus move-outs ... and because we're seeing fewer folks move-out to buy a house ... that does play a role. Some will end up renting a single-family home instead as life stages change, but there's no doubt there's some impact for apartments, too. Will hot demand continue in the second half of 2024 as supply peaks before sliding back in 2025? #multifamily #apartments #housing

U.S. apartments added 257k net new renters in the first half of 2024 -- the 2nd-strongest first half of a calendar year in 20+ years. It's yet another reminder that for all the challenges facing multifamily operators this year, fundamental demand ain't one of them. Of course, despite that strong demand, there's still moderately elevated vacancy + zero rent growth nationally. Why? Because we added FAR more supply in the first half of 2024 than we did in any first half in 40+ years. Completions tallied 284k units, according to RealPage, which is nearly 3x the 2000-2019 average. Yet it's still remarkable that the supply/demand gap wasn't more than it was (284k versus 257k units), considering the historic surge in completions. What's driving the demand boom? 1) Clearly, renter household formation is rebounding again following softer numbers in 2022-23. Demand was somewhat surprisingly tepid in those years despite strong job growth and wage growth, likely due to peak consumer inflation convincing would-be householders to hit the pause button. But inflation sans (official) shelter hovering back around 2% AND apartment rents flat AND continued solid job/wage growth (especially among young adults) appears to have lured a lot of folks off the sidelines. 2) Supply creates demand? Well, sort of. The supply boom (coupled with attractive concessions) appears to be unleashing pent-up demand for newer apartments. Apartment demand is technically absorption, and you can only absorb what is available. So when more units become available, absorption potential goes up. That's why supply and demand tend to be correlated, and that's happening again in 2024. 3) Market-rate apartment affordability is shifting back to a tailwind again. Not everyone will agree with this, but they're looking at the wrong data. When we drill down into market-rate, professionally managed apartments, there's no doubt: Wage growth has outpaced rent growth for about 18 months, so rent-to-income ratios have steadily shrunk back toward pre-pandemic levels, according to RealPage data. (Public REITs have reported similar positive trends.) We'll likely get all the way back there before the end of 2024. Improved affordability widens the demand funnel across the price spectrum -- a win/win for renters and operators. 4) Fewer move-outs to purchase. This one is a bit complicated, as some folks will want to assign this one outsized credit. Remember: Most stymied, would-be homebuyers are already renters. So it doesn't explain 257k net NEW renter households. But because net absorption is move-ins minus move-outs ... and because we're seeing fewer folks move-out to buy a house ... that does play a role. Some will end up renting a single-family home instead as life stages change, but there's no doubt there's some impact for apartments, too. Will hot demand continue in the second half of 2024 as supply peaks before sliding back in 2025? #multifamily #apartments #housing

U.S. apartments added 257k net new renters in the first half of 2024 -- the 2nd-strongest first half of a calendar year in 20+ years. It's yet another reminder that for all the challenges facing multifamily operators this year, fundamental demand ain't one of them. Of course, despite that strong demand, there's still moderately elevated vacancy + zero rent growth nationally. Why? Because we added FAR more supply in the first half of 2024 than we did in any first half in 40+ years. Completions tallied 284k units, according to RealPage, which is nearly 3x the 2000-2019 average. Yet it's still remarkable that the supply/demand gap wasn't more than it was (284k versus 257k units), considering the historic surge in completions. What's driving the demand boom? 1) Clearly, renter household formation is rebounding again following softer numbers in 2022-23. Demand was somewhat surprisingly tepid in those years despite strong job growth and wage growth, likely due to peak consumer inflation convincing would-be householders to hit the pause button. But inflation sans (official) shelter hovering back around 2% AND apartment rents flat AND continued solid job/wage growth (especially among young adults) appears to have lured a lot of folks off the sidelines. 2) Supply creates demand? Well, sort of. The supply boom (coupled with attractive concessions) appears to be unleashing pent-up demand for newer apartments. Apartment demand is technically absorption, and you can only absorb what is available. So when more units become available, absorption potential goes up. That's why supply and demand tend to be correlated, and that's happening again in 2024. 3) Market-rate apartment affordability is shifting back to a tailwind again. Not everyone will agree with this, but they're looking at the wrong data. When we drill down into market-rate, professionally managed apartments, there's no doubt: Wage growth has outpaced rent growth for about 18 months, so rent-to-income ratios have steadily shrunk back toward pre-pandemic levels, according to RealPage data. (Public REITs have reported similar positive trends.) We'll likely get all the way back there before the end of 2024. Improved affordability widens the demand funnel across the price spectrum -- a win/win for renters and operators. 4) Fewer move-outs to purchase. This one is a bit complicated, as some folks will want to assign this one outsized credit. Remember: Most stymied, would-be homebuyers are already renters. So it doesn't explain 257k net NEW renter households. But because net absorption is move-ins minus move-outs ... and because we're seeing fewer folks move-out to buy a house ... that does play a role. Some will end up renting a single-family home instead as life stages change, but there's no doubt there's some impact for apartments, too. Will hot demand continue in the second half of 2024 as supply peaks before sliding back in 2025? #multifamily #apartments #housing

U.S. apartments added 257k net new renters in the first half of 2024 -- the 2nd-strongest first half of a calendar year in 20+ years. It's yet another reminder that for all the challenges facing multifamily operators this year, fundamental demand ain't one of them. Of course, despite that strong demand, there's still moderately elevated vacancy + zero rent growth nationally. Why? Because we added FAR more supply in the first half of 2024 than we did in any first half in 40+ years. Completions tallied 284k units, according to RealPage, which is nearly 3x the 2000-2019 average. Yet it's still remarkable that the supply/demand gap wasn't more than it was (284k versus 257k units), considering the historic surge in completions. What's driving the demand boom? 1) Clearly, renter household formation is rebounding again following softer numbers in 2022-23. Demand was somewhat surprisingly tepid in those years despite strong job growth and wage growth, likely due to peak consumer inflation convincing would-be householders to hit the pause button. But inflation sans (official) shelter hovering back around 2% AND apartment rents flat AND continued solid job/wage growth (especially among young adults) appears to have lured a lot of folks off the sidelines. 2) Supply creates demand? Well, sort of. The supply boom (coupled with attractive concessions) appears to be unleashing pent-up demand for newer apartments. Apartment demand is technically absorption, and you can only absorb what is available. So when more units become available, absorption potential goes up. That's why supply and demand tend to be correlated, and that's happening again in 2024. 3) Market-rate apartment affordability is shifting back to a tailwind again. Not everyone will agree with this, but they're looking at the wrong data. When we drill down into market-rate, professionally managed apartments, there's no doubt: Wage growth has outpaced rent growth for about 18 months, so rent-to-income ratios have steadily shrunk back toward pre-pandemic levels, according to RealPage data. (Public REITs have reported similar positive trends.) We'll likely get all the way back there before the end of 2024. Improved affordability widens the demand funnel across the price spectrum -- a win/win for renters and operators. 4) Fewer move-outs to purchase. This one is a bit complicated, as some folks will want to assign this one outsized credit. Remember: Most stymied, would-be homebuyers are already renters. So it doesn't explain 257k net NEW renter households. But because net absorption is move-ins minus move-outs ... and because we're seeing fewer folks move-out to buy a house ... that does play a role. Some will end up renting a single-family home instead as life stages change, but there's no doubt there's some impact for apartments, too. Will hot demand continue in the second half of 2024 as supply peaks before sliding back in 2025? #multifamily #apartments #housing

For the first time in three years, the year-over-year apartment rent growth trendline isn’t moving like a roller coaster. National rent growth held steady at a flat 0.1% annually for a second consecutive month – pushing the pause button on what had been 18 straight months of cooling that followed a similar stretch of increases. But beneath the headline number, it’s a bit more complicated story around what’s called the base effect. Few observations on the current state and the near-term outlook for rents: 1) On a month-over-month basis, effective rents fell 0.56% in October 2023. That compared to a 0.54% cut in October 2022. Those cuts rank as the deepest for any October since the Great Financial Crisis. In other words: One deep monthly cut is replacing another in the year-over-year calculation, creating the appearance of stability in the year-over-year rent metric. 2) The base effect will remain at play through the winter due to bigger-than-normal cuts over the same period last year, which could keep the headline rent metric pretty flat. The bigger question could be what happens in the first half of 2024. At that point, the base effect is less severe at the same time new supply levels will be peaking at multi-decade highs. 3) On the plus side: October will almost certainly mark the 11th consecutive month where wage increases outpace rent increases – a trend that’ll likely persist through next year. That’ll erase much of the rent-over-wage bump of 2021 and early 2022, and in turn should help further widen the demand funnel. As mid- and upper-income renters continue to move up from older units to newer (and typically pricier) units, the affordability gains should help backfill older, moderately priced units. 4) As a reminder: It's still all about supply. Rents are cooling fastest where supply is growing fastest. Among the markets still seeing sizable rent growth above 3%, nearly all are adding new supply at below-average rates. And among markets cutting rents the most, nearly all are adding new supply at above-average rates. So if you really care about affordability: Build, build, build. 5) "Heads in beds" remains the industry mantra these days. My guess is we'll continue to see operators in high-supply markets (and especially high-supply submarkets) continue to cut rents to fill units. But in lower-supply markets, it appears rent growth is leveling off and likely to remain moderately positive. Lastly: Be leery of one-size-fits-all analysis or strategy. It's a tale of two markets right now-- those with a lot of supply and those without. #apartments #multifamily #housing #rents

For the first time in three years, the year-over-year apartment rent growth trendline isn’t moving like a roller coaster. National rent growth held steady at a flat 0.1% annually for a second consecutive month – pushing the pause button on what had been 18 straight months of cooling that followed a similar stretch of increases. But beneath the headline number, it’s a bit more complicated story around what’s called the base effect. Few observations on the current state and the near-term outlook for rents: 1) On a month-over-month basis, effective rents fell 0.56% in October 2023. That compared to a 0.54% cut in October 2022. Those cuts rank as the deepest for any October since the Great Financial Crisis. In other words: One deep monthly cut is replacing another in the year-over-year calculation, creating the appearance of stability in the year-over-year rent metric. 2) The base effect will remain at play through the winter due to bigger-than-normal cuts over the same period last year, which could keep the headline rent metric pretty flat. The bigger question could be what happens in the first half of 2024. At that point, the base effect is less severe at the same time new supply levels will be peaking at multi-decade highs. 3) On the plus side: October will almost certainly mark the 11th consecutive month where wage increases outpace rent increases – a trend that’ll likely persist through next year. That’ll erase much of the rent-over-wage bump of 2021 and early 2022, and in turn should help further widen the demand funnel. As mid- and upper-income renters continue to move up from older units to newer (and typically pricier) units, the affordability gains should help backfill older, moderately priced units. 4) As a reminder: It's still all about supply. Rents are cooling fastest where supply is growing fastest. Among the markets still seeing sizable rent growth above 3%, nearly all are adding new supply at below-average rates. And among markets cutting rents the most, nearly all are adding new supply at above-average rates. So if you really care about affordability: Build, build, build. 5) "Heads in beds" remains the industry mantra these days. My guess is we'll continue to see operators in high-supply markets (and especially high-supply submarkets) continue to cut rents to fill units. But in lower-supply markets, it appears rent growth is leveling off and likely to remain moderately positive. Lastly: Be leery of one-size-fits-all analysis or strategy. It's a tale of two markets right now-- those with a lot of supply and those without. #apartments #multifamily #housing #rents