Why Apartment Rents Are SKYROCKETING…

The median monthly asking apartment rents across the US exceeded $2,000 for the first time in May, with a 15% Year over Year growth in May, according to a recent report by Redfin.

During times like this, it seems like just about everything is getting more and more expensive, which is just the reality of things that we have to live with for now. What’s interesting to see is how rapidly home rental prices are climbing, especially since the beginning of the year, where home prices were rising at extremely fast levels pushing a lot of buyers out of the market, and then only to finish that off with a big run up in fast paced interest rate increases that pushed the idea of buying a house way out of a lot of potential buyers out of the market.

Interest rates have gone up so much since the beginning of the year to the point where mortgage applications are down 55% since May of 2021 according to the Mortgage Bankers Association, mainly as a result of higher interest rates. In this chart I put together below, it shows the difference between having a $400k mortgage at the beginning of the year vs having a $400k mortgage today. Massive difference of $617 more per month for the exact same mortgage amount.

How Is this Affecting Rental Prices & Demand?

This increase is causing more and more people to opt to rent, which is why rent is skyrocketing now and vacancy is at a 35 year low. New leases are being signed at 19.5% more than the previous residents of the same units according to RealPage Market Analytics.

Now if you look at the Vacancy rate of rental units, we are hitting record lows at 5.8%, which hasn’t been since for the past 35 years. This is all a result of higher demand as more and more people are opting to rent.

What About Affordability?

For rents to continue to go up, people must be able to afford higher rent payments. Although we’ve had a big amount of inflation over the past year, we have also had a massive labor shortage. This labor shortage has boosted the median renter household income considerably, almost toe to toe in line with new asking rents.

Despite increasing rents, tenants have been able to pay rent at a very good pace and collections have been great in the multifamily sector.

Conclusion:

I am a big fan of following data because data could tell us the whole picture of what’s happening without needing to rely on guessing, emotions, or the news.

While the stock market is unfortunately not doing well, neither is Crypto, thankfully Multifamily Real Estate has been performing relatively well. I had made a prediction a few months prior that rents were going to increase as it was obvious given what was happening with the housing market.

If you would like to see our future deal flow, please make sure to book a 15 minute call by clicking here if we have not talked one on one in the past so that I could add you to our Model Equity Investor Club. There will be no sales pitch or offers made on the call. I will answer any questions you have about Multifamily Real Estate and add you to our distribution list.