U.S. Rent Growth Flatlines As Massive Flood Of New Apartment Supply Finally Takes Its Toll

After a slow and steady march higher in the wake of the 'great recession' nearly a decade ago, a note today from Rent Cafe shows that average rents in the United States may have finally stalled in July at $1,350 per month after posting a paltry sequential gain of just 0.1%.  









Rents are still steadily climbing across the country, but that growth is finally slowing – and in a big way. In July, national rents grew a meager 0.1% over the month and just 2.6% from the same period in 2016, according to recent data from Yardi Matrix.


 


This national slowdown is thanks, in large part, to the huge influx of new apartments that has hit the scene in the past year – as well as the thousands more expected by the end of 2017. This year is expected to mark the biggest jump in apartment construction in the last two decades, with nearly 347,000 new units entering the market – a 21% increase over last year’s numbers.




 


Of course, this should come as little surprise to our readers as softening apartment rents, particularly in the massively over-priced, millennial safe-spaces of New York City and San Francisco, have been a frequent topic of conversation for us over the past several quarters...here are just a couple of recent examples:











As we pointed out several months ago, just like almost any bubble, stagnating rents are undoubtedly the symptom of a massive, multi-year supply bubble in multi-family housing units sparked by, among other things, cheap borrowing costs for commercial builders.  Per the chart below, multi-family units under construction is now at record highs and have eclipsed the previous bubble peak by nearly 40%.


Goldman


 


But, while rents are certainly slowing – and construction is indeed playing its part – the impact isn’t spread evenly across all markets as Rent Cafe notes that 64% of the new supply is limited to the nation’s top 20 metro areas.  Therefore, it's not terribly surprising that the worst performing rental markets so far this year also happen to be the most expensive and the ones that have attracted the most capital for new developments. 


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