Lawler: Freddie Mac “National” Home Price Index Down Again in November; Rents Continued to Slide

Lawler: “Best guess” is that the national apartment rent index will decline by about 4% in 2023.

From housing economist Tom Lawler:

Freddie Mac House Price Index (FMHPI®)

Freddie Mac recently reported that its “National” Home Price Index (FMNHPI) declined for the fifth straight month on a seasonally adjusted basis in November, putting the FNNHPI down 2.06% from its June 2022 peak.  Compared to a year earlier the November FMNHPI was up 6.27%, down from October’s 7.92% YOY gain.  The November seasonally adjusted FMHPIs for 29 states plus DC were below their 2022 peaks, with five states showing declines of over 5% from their 2022 peak levels.

CR Note: This is a repeat sales index using only loans purchased by Fannie and Freddie. Freddie has data for all states and many cities. Idaho is down 8.16% seasonally adjusted compared to the peak in 2022. Arizona is down 7.06%, and California is down 5.88%.

Rents Continued to Slide in December

CR Note: I already reported on Apartment List data: Rents Continue to Decline More than Seasonally Normal

Real Page reported that its National Rent Index (RPRI) declined for the fourth straight month in December.  While Real Page noted that rents are seasonally weak in the last few months of the year, it said that the declines in the last four months were larger than the seasonal norm.  The YOY % increase in the December RPRI was 6.1%; in March it was 15.7%.

Real Page also said the following about rental demand:

“Net demand for apartments ended in negative territory for calendar 2022. But, unlike the last time demand went negative in 2009, renter turnover was curiously low in 2022. Instead, the problem was at the front door: Demand for new leases all but evaporated due to low consumer confidence and high inflation.”

Of course, that last “explanation” seems pretty weak.  A more logical explanation is that household formations were temporarily but significantly boosted by the pandemic, and that more recently household formations have fallen back to levels more consistent with population trends, and perhaps even slowed beyond that in response to earlier sharp increases in housing costs.

Here’s more from Real Page:

“Bottom line is the rental market is rapidly shifting in the favor of renters. National apartment vacancy jumped from a record seasonal low one year ago of 2.5% up to 5.0% in December 2022. Vacancy increased over the past year in all but two of the nation’s 150 largest metro areas, with the only exceptions being the tertiary markets of Midland/Odessa, TX, and Youngstown, OH.

“Vacancy will almost certainly increase more in 2023 as new supply surges to the highest levels in four decades. A total of 971,356 apartment units were under construction at the end of 2022, with about 575,500 scheduled to complete in 2023. “

Flipping back to the Apartment List Rent Index, Apartment List includes ALRIs for cities, counties, and states.  The ALRI for five states declined last year. 

My “best guess” is that the national apartment rent index will decline by about 4% in 2023.

This note was from housing economist Tom Lawler.