Are you planning on investing in the apartment market? But you’re not sure if now is the right time to invest because of the economy?
Thanks to recent data, we know that apartment rents are rising at the fastest pace that they’ve risen at in the last 10 years.
This is exciting news for multifamily investors, especially as 2020 was a difficult year for everyone, especially multifamily investors, as most owners had to deal with eviction moratoriums and the adverse effects of COVID-19.
As we approach the summer months, it’s looking like more people are moving back to the city, after moving away last year to escape escalating COVID-19 cases that were starting to skyrocket.
The growth of apartment rents is a positive sign that the nationwide apartment market is heading in the right direction, just in time for summer.
Now Is The Right Time To Invest In The Apartment Market
With the recent positive news about the apartment market, now is the perfect time for investors to make their move and invest in multifamily, especially as the COVID-19 vaccine is distributed and more people return to life as normal.
The recent growth in our national index has now reversed the disruption experienced in the early stages of the pandemic. Rents fell by 1.2 percent nationally from March through June of 2020, during what is normally peak season for the rental market. But in the second half of 2020, national rent growth was largely in line with the seasonal trend that we’ve observed in prior years, and now our index is growing faster than the typical seasonal trend.
In markets like San Francisco where rents had been falling fastest, prices have turned a corner and are now rebounding. At the same time, booming markets like Boise continue to see prices climb. More broadly, as vaccine distribution continues to gain momentum, we may be starting to experience the release of pent up demand from renters who had been delaying moves due to the pandemic. Whereas last year’s peak moving season was halted by the pandemic, this year’s seasonal spike appears to be making up for lost time.
San Francisco consistently made headlines throughout the pandemic for the staggering 26.6 percent drop in rents from March 2020 through January 2021, but since January, San Francisco rents have increased by 8.5 percent. Although rents in San Francisco are still down by 19.5 percent year-over-year, the market has clearly turned a corner.
Beyond San Francisco, we’re seeing a similar trend playout in all of the cities where rents had been falling fastest. Nine of the ten cities with the sharpest year-over-year rent declines have now experienced positive rent growth for three consecutive months. Four of these cities — San Jose, Washington, D.C., Boston, and Minneapolis — have seen rents increasing for four consecutive months. The following chart shows month-over-month rent growth from 2018 to present for six of the cities that have been hit hardest by the pandemic:
2018 and 2019 illustrate the typical seasonal price fluctuations of pre-pandemic years, with the bulk of annual apartment rent growth occurring during the spring and summer, followed by modest declines during the fall and winter off-season.
With the start of the pandemic in 2020, we see a sharp break from the prior-year trend, with large month-over-month declines persisting throughout the year.
In 2021 we see a sharp rebound back to positive rent growth, with monthly increases larger than what was typical pre-pandemic.
In each of the six cities shown, the fastest single-month rent increase has taken place in 2021. Rents are still well below pre-COVID levels, and it’s possible that the steep upward trajectory could level out. But as of now, the rent rebound in pricey coastal superstar cities is happening sooner and more rapidly than we expected. Nowhere is the trend stronger than in Boston, where prices have increased 12.4 percent since the start of the near year, erasing more than half of the city’s pandemic rent decline.
Affordable mid-size markets continue to boom
As expensive coastal cities watched rents plummet throughout 2020, another group of mid-sized markets were heating up. The pandemic and remote work spurred demand for the space and affordability that these cities offered, and in response, rent prices grew even as the surrounding economy struggled. But while rent declines in expensive markets have reversed course, the cities where rents have been growing fastest are continuing to boom.
Leading the trend is Boise, ID, where rents grew by a staggering 5.2 percent over just the past month. This is the fastest month-over-month growth rate among the nation’s 100 largest cities, and Boise also continues to rank #1 for fastest year-over-year growth, which now stands at 22.7 percent. All of the 10 cities with the fastest year-over-year rent growth saw prices continue to increase this month.
Many of these markets had been heating up prior to the pandemic. For example, from January 2017 to January 2020, rents in Fresno increased by 22.6 percent, the nation’s third fastest growth over that period. Chandler, AZ ranked #6 for fastest rent growth from 2017 to 2020, and eight of the ten cities with the biggest pandemic booms were in the top 20 for pre-pandemic growth. The pandemic did not necessarily start a new trend in these markets, so much as accelerate an existing one. This stands in contrast to what has happened in the expensive markets discussed above, for which the rent declines of the past year were a complete aberration. Given this longer-term context, as well as the continued upward trajectory in rent trends, it seems that Boise and cities like it have yet to hit their peaks.
Invest In Multifamily Properties With Trier Capital
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