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Hot and Cold: Measuring the Q2 Market Climate

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Is the multifamily market heating up or cooling down? The answer is yes. It just depends on where you look, according to Greg Willett, Chief Economist at RealPage, Inc., and Jay Parsons, RealPage’s VP for Product Marketing, Asset Optimization.

US market performance is strong, but with a few surprising changes, and a warning on the horizon, they explain in their Q2 market summary webcast.

“Q2 demand, normally the best during the year, is in line with the norm,” says Greg Willett. “Demand for market-rate units in Q2 has averaged 135k units over the past eight years. Q2 2018 clocked in at 133k units.”

Q2’s robust demand pushed year-to-date absorption to 189k units, topping completions of 150k units in 2018’s first half. Annual demand for 303k units is now back in line with the delivery total seen over the past 12 months.

So, what’s driving it?

“No surprise, it’s the strong economy,” says Jay Parsons. “Job production statistics show a monthly gain averaging 215k jobs for 2018. National employment is at 3.9%, with many top markets doing even better. That job growth points to new household formation.”

“But the economy itself is the surprise,” continues Parsons. “Manufacturing is up, with the job count up 327k positions from one year ago. The last time that happened is two decades ago! And that’s in the face of a 40-year-long decline. Then there’s the sky-high leap in small business owner optimism since the election. They’re hiring, upgrading equipment and spending more on marketing and promotion.”

“The impressive demand levels have sustained occupancy at 95.4%, despite lots of new units coming online. All healthy, as is the growth in effective rents, which is up 2.5% nationwide,” adds Greg Willett.

Willett notes that the 2.5% effective rent inflation is consistent across classes. Class A is at 2.4%, Class B, 2.7% and Class C, 2.4%. But now comes the change in the weather. Many RealPage clients across the country have remarkably different viewpoints about today’s metrics. Some think the Class A number is basically zero. Part of that view reflects the fact that the 2.5% number is a drop from the average 3.7% growth seen over the past eight years. But the bigger factor is where their portfolios are.  We need to look across markets and apartment classes to get the full story.

“There ARE weak points in Class A,” says Willett. “Dallas, Atlanta, Boston and Newark’s growth are below 1%, and they play a big role in driving US results. We’re actually cutting rent in Seattle, Portland, Chicago and Nashville. Few would have predicted that at the start of 2018. There are more surprises in the Class B and C sectors. Many clients expected bigger numbers, but rent growth is slowing down to maintain that difference between what the top tier is charging. And, in Class C, residents don’t earn enough to afford sizable rent bumps.”

“Now for the sunny side,” says Parsons. “Across the Class A spectrum, 32 of the top 50 metro markets have growth of 2-3% or more. There are impressive numbers in the top ten markets. Orlando is at 6.5%, Las Vegas at 5.9%, and it’s 4-5% for the next six metros down. In some small market metros, we have annual rent growth from 5% to nearly 8%. The superstar is the Oil Patch, with 35.6% growth in Midland-Odessa, Texas.”

“We can take that news further,” Willett adds. “The price bump for renters who stayed in place remains strong. In the top 50 metros, they paid 4.4% higher rents than the cost of the earlier lease.”

“There’s more good news in construction,” says Parsons, “Supply volumes look likely to continue at an annual pace above 300k units at least through mid 2019. That wasn’t expected. Nor is the fact that Dallas-Fort Worth and New York-New Jersey, which have slow rent growth, lead the nation with 30k+ and 22k+ units on the way, respectively. Plus, a number of permit leaders are getting more active, with annual changes in the double digits.”  

“And then comes the distant warning,” Willett points out. “Most economists have flipped into a recession outlook for 2020, and on into 2021. I have to say I agree with them. Bottom line, variability is the new constant.”

So, strength, change and watchfulness—that’s the market climate forecast from RealPage. Stay tuned for more.


Get on top of the market with Asset Optimization webcasts from RealPage at

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