Source: Jin10 Data

After experiencing a sharp increase for several years, the rent growth in some parts of the United States has slowed down, and apartment residents finally have a sigh of relief. But this relief seems to be coming to an end. According to most real estate data and broker company data tracking these data, although the rent of new leases in the United States has been almost flat in the past 12 months, these data are severely distorted in the Sunshine Belt, where the record high supply leads to negative growth in rents in some cities. Note: The Sunshine Belt refers to the region from the west coast of the Pacific Ocean in California to North Carolina on the east coast of the Atlantic Ocean and from the midstream of the Mississippi River in the north to the Gulf Coast in the south.

This year, several cities in the northeastern and midwestern United States, such as Kansas City in Missouri and Washington, D.C., have seen an increase in rent.

According to most real estate data and the data of broker companies that track these data, although the rent of new leases in the United States has been almost flat over the past 12 months, these data are severely distorted in the Sunshine Belt, where the record high supply leads to negative growth in rents in some cities.

Note: The Sunshine Belt refers to the region from the west coast of the Pacific Ocean in California to North Carolina on the east coast of the Atlantic Ocean and from the midstream of the Mississippi River in the north to the Gulf Coast in the south.

The housing sales market that is the most difficult to afford in decades is forcing more tenants to renew their leases. The owners of large apartment units say that due to record-high prices, limited inventory, and higher mortgage rates, fewer tenants are moving out to buy houses than ever before.

Igor Popov, chief economist at Apartment List, said, "It's clear that rental demand is rebounding, and we've come out of the valley."

Strong employment growth has also opened the door for landlords to raise rents. "This gives them pricing power," said Linda Tsai, a real estate stock analyst at Jefferies.

Rent increases complicate the anti-inflation situation and may make it difficult for the Federal Reserve to cut interest rates. Labor Department data showed that inflation was lower than expected last month, but the prospect of more landlords raising rents may offset the impact of rent declines in other areas.

Data shows that the main measure of housing inflation, which lags behind the actual market conditions for months, remained high in May, with an annual rate of 5.4%.

Federal Reserve Chairman Powell said at a press conference after the interest rate decision: "The housing situation is complicated. The best thing we can do for the real estate market is to reduce inflation so that we can lower interest rates."

Although most analysts say that the rate of housing price increases will further slow down this year, some apartment owners say that the worst period of rent decline has passed.

Tim Argo, an executive at Mid-America Apartment Communities, a real estate investment trust company in the United States, said on the earnings conference call in May: "We believe that we may have seen the biggest negative impact on the pricing of new leases."

This Sunshine Belt apartment management company has been lowering the prices of new leases. But the company said that apartment absorption in the first quarter reached the highest level in 20 years.

The historic oversupply of new apartment units has been suppressing rents for over a year. The vacancy rate for apartments increased last year, and the decline in demand forced owners (especially those who owned new buildings) to control rent increases.

But market reports now show that the number of apartment residents moving out has not been as high as before in recent months, and the leasing rate of vacant units is also fast.

Sean Breslin, chief operating officer of AvalonBay Communities, said at an earnings conference call that in the first quarter of this year, only 7% of the company's property residents planned to buy a house. He said that this is in sharp contrast to the long-term average of 16% to 17%.

According to recent revenue reports, large landlords have raised the rent for renewing leases by about 4% or more. This is consistent with recent historical average levels and higher than the overall inflation rate.

Equity Residential, a real estate company that focuses on affluent tenants in coastal markets, said at the end of April that it asked existing tenants to pay nearly a 7% rent increase.

Investment companies eager to cash out have started buying large apartment portfolios again. Blackstone Group recently agreed to pay $10 billion to acquire Apartment Income REIT, which owns properties in upscale coastal markets.

Other investors are more interested in the mid-market housing, and are not scared off by the oversupply concentrated in the high-end markets.

According to Swarup Katuri, Managing Partner of Investment Giant Brookfield Real Estate Group, "We are not directly competing with new supplies of homes."

In May of this year, Brookfield spent over $1.5 billion to acquire 7,300 apartments in Sunshine Coast, most of which are 30-year-old garden apartment buildings. The average rent for these apartments is around $1,700.

According to a detailed description of the business plan for the bond issuance, Brookfield plans to renovate and raise rents on these properties in the next five years and increase cash profit by more than 34%.

According to real estate data firm CoStar, the average rent differential between mid-level apartments and newer luxury apartments is about $570. CoStar said that since 2019, mid-level apartment rents have risen faster than low-end and high-end rents.

Although rents have rebounded from their lows, most analysts believe that rents across the United States will not experience a significant increase again this year. Commercial real estate brokerage Newmark predicts that rents for new leases nationwide will rise 2% by 2024, far lower than the double-digit increases during the pandemic.

According to Apartment List, only four metropolitan areas with populations of at least one million - Louisville, Kentucky, Hartford, Connecticut, Providence, Rhode Island and Honolulu - saw average rents for new leases rise by 5% or more this year.

At the same time, high levels of supply are expected to continue to put pressure on rents in sunbelt cities like Austin, Texas, Phoenix and Nashville, Tennessee, where average rents for new leases are still declining.

Northeastern U.S. residents are not so lucky. Srinivas Jayaswal said the rent for his two-bedroom apartment in West Windsor, New Jersey, has risen by over 40% since 2018, to $3,100 this month. The latest data shows an increase of 9% from last year.

Jayaswal said, "I thought things would gradually improve, but it doesn't seem to be the case."

Editor/Lambor