Rents Still Increasing Sharply Year-over-year

NMHC: "Apartment occupancy remains at record-highs"

First, from the National Multifamily Housing Council (NMHC): January Apartment Market Conditions Show Improvement

Apartment market conditions generally improved according to the National Multifamily Housing Council’s Quarterly Survey of Apartment Market Conditions for January 2022. The Market Tightness (69), Sales Volume (59), and Equity Financing (67) indexes all came in above the breakeven level (50) for the fourth quarter in a row, though many respondents indicated conditions remained unchanged across the indexes. The Debt Financing (36) index indicated weaker conditions for the second consecutive quarter.

“We are continuing to witness strong demand for apartments across the entire U.S., but most notably in the Sun Belt, where most markets have seen double-digit rent growth that has more than made up for the pandemic slowdown,” noted NMHC’s Chief Economist, Mark Obrinsky. “And even as construction continues to rebound from the lows of 2020, absorptions have more than kept pace, such that apartment occupancy remains at record-highs.”

emphasis added

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tighter conditions from the previous quarter. 

Even though the index declined in January, this indicates market conditions tightened further in January for the fourth consecutive quarter, after being especially weak during the early months of the pandemic.

Asking Rents Increase Year-over-year, Down Seasonally

From ApartmentList.com: Apartment List National Rent Report

After a slight dip to close out 2021, our national index ticked back up by 0.2 percent over the course of January. Even though month-over-month growth has moved back into positive territory, rent growth has still cooled substantially from last year’s peak. Year-over-year rent growth currently stands at a record-setting 17.8 percent, but over the past four months, rents have increased by a total of just 0.9 percent. Much of this cooldown is likely related to seasonal factors; it remains to be seen if rapid rent growth will return as moving activity picks back up in the spring and summer. …

Although many renters may be rightfully dismayed by last year’s record-setting rent growth, the situation has shown signs of easing in recent months. From last March through September, the national median rent grew by an average of 2.1 percent per month – nearly the same amount that they increased over the entire year of 2019. However, over the most recent four months, monthly growth has averaged just 0.2 percent, with a total increase of less than one percent over that period. In December, rents actually fell by 0.2 percent, the only time they did so in 2021. That price dip proved to be short lived, but this month’s increase was still a modest one.

This appears to be the normal seasonal slowdown in rent increases. Note that rents fell for much of 2020.

I’m going to update some of the data that shows rents are accelerating. Here is a graph of several measures of rent since 2000: OER, rent of shelter, rent of primary residence, Zillow Observed Rent Index (ZORI), and ApartmentList.com. (All set to 100 in January 2017)

Note: For a discussion on how OER, and Rent of primary residence are measured, see from the BLS: How the CPI measures price change of Owners’ equivalent rent of primary residence (OER) and rent of primary residence (Rent)

OER, rent of shelter, and rent of primary residence have mostly moved together. The Zillow index started in 2014, and the ApartmentList index started in 2017. Here is a graph of the year-over-year (YoY) change for these measures since January 2015. All of these measures are through December 2021 (Apartment List through January 2022).

The Zillow measure is up 13.9% YoY in December, up from 13.2% YoY in November. And the ApartmentList measure is up 17.8% as of December, down slightly from 17.9% in November. Both the Zillow measure (a repeat rent index), and ApartmentList are showing a sharp increase in rents. From Zillow:

“ZORI is a repeat-rent index that is weighted to the rental housing stock to ensure representativeness across the entire market, not just those homes currently listed for-rent.”

And from ApartmentList:

At Apartment List, we estimate the median contract rent across new leases signed in a given market and month. To capture how rents change in a market over time, we estimate the expected price change that a rental unit should experience if it were to be leased today.

Both of these measures reflect new leases, whereas most rental units don’t turnover every year (as captured by the BLS measures). Adam Ozimek, Chief Economist at @Upwork explained this succinctly:

Adam Ozimek @ModeledBehavior

@lucas_crisco @jmhorp Okay so say the entire economy was one apartment building. BLS asks every renter in the apartment: how much are you paying this month? Then measures the change every month. Zillow looks at the change in the units that are currently up for rent.

But this sharp increase in new lease rates should spill over into the consumer price index over the next year (as discussed in earlier article).

Clearly rents are still increasing, and we should expect this to continue to spill over into measures of inflation in 2022. The Owners’ Equivalent Rent (OER) was up 3.8% YoY in December, from 3.5% YoY in November - and will likely increase further in the coming months.