Is the rental market going to crash?

David Goldsmith

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Rental Housing Is Suddenly Headed Toward a Hard Landing
While investors were focused on fears of a collapse in the homebuying industry, a crash in the apartment market has been taking shape.

David Goldsmith

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New Yorkers should expect lower rents in 2023, but no big discounts​

What's next for New York apartment dwellers, after rent inflation hit new records in 2022

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The covid-19 pandemic triggered a once-in-a-century shock to New York City’s population. But following an exodus of residents in 2020, demand for apartments returned in 2021, and the buildup of apartment inventory that the pandemic created was erased by 2022.
As a result, rents in Manhattan rose to record highs last year, which only increased demand in boroughs with more affordable apartments like Queens, the Bronx, and Staten Island.

Where might New York City rents go in 2023? We asked Kenny Lee, an economist at StreetEasy, the go-to site for real estate listings in the city. The following interview has been lightly edited for length and clarity:

Quartz: Are rents in New York City higher because demand is normalizing or because we’re not building enough supply?​

Lee: It’s a bit of both. New York has always been very expensive. About a third of New York renters are already spending more than half their income just on rent, and that data was as of 2021. With a rapid increase in rents this year, rising 21% from 2021, that number is probably already higher.
There seems to be a growing momentum, at least between city and state officials, to really find a way to really increase the supply of housing, through regulatory changes, and also tweaking zoning laws that can make diversifying Manhattan’s commercial districts possible.
[In 2022,] we identified that 69,000 permits for housing units were issued by the city. That’s a record. It’s more than 25 times the number of housing units that got permission from the city in 2021 as developers really rushed to qualify for the tax exemptions that expired a few months ago.

New York is also getting stricter rules for short-term Airbnb rentals, which will probably shrink the number of Airbnbs by 10,000. Do you have an idea of how close that might get us to a vacancy rate that looks more like 2019 levels?​

I think the exact number of short-term rentals tend to vary. What I can say is that the conversation on this is really intensifying, because of the affordability problem. A lot of renters out there already have been squeezed to their limits.

What does the inventory of New York City apartments look like now?​

Inventory reached its pandemic peak in August 2020. From that point, inventory is down 66% as of December 2022. That means renters used to have three times the options in 2020 compared to now.

What other changes are going to affect inventory this year?​

First of all, the rental market is inevitably linked to the sales market. There are a lot of priced-out buyers out there who are stuck with their rental units. With elevated mortgage rates, it’s more expensive for buyers to stay in the market, and for that reason buyers are reducing the number of available rental units.
Higher mortgages rates are also affecting sellers. Some of the sellers may transition into renting out their units instead of selling, but it remains to be seen how many of them actually convert their homes into rentals. My understanding is that there aren’t many owners out there who already have a second home and can rent out their own home.

We’re also in a different world after the pandemic. A lot of New Yorkers are paying up to avoid having roommates, despite record high rent and potential annual savings of $15,000 per person from living with roommates.

So what does all this mean for New York City apartment rents in 2023?

Rents will decline as the rental market continues to normalize in 2023 but renters should not expect deep discounts.

David Goldsmith

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NYC Rental Inventory Rises for the Second Month​


David Goldsmith

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David Goldsmith

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Millionaire renters on the rise in New York City
Wealthy tenants up 170% in the Big Apple from 2015 to 2020: RentCafe

As high prices and high mortgage rates sideline some buyers from the housing market, more high-earning tenants in New York City are deciding homebuying is not worth the hassle.
New York is the hottest rental spot for millionaires, according to a report from RentCafe. There were nearly 2,500 millionaire rental households in the Big Apple in 2020, trouncing other cities by leaps and bounds, including San Francisco in second place with less than 300).

The report analyzed census and survey data from Integrated Public Use Microdata Series from 2015 through 2020 to study rental trends across the nation.
New York City’s rental households accounted for roughly 75 percent of the national total. The amount of millionaire rental households grew by 171 percent from 2015. Other cities to see big spikes in the category over those five years include Los Angeles, San Francisco and Jersey City.

The city also claimed the top spot for number of high-income rental households — defined as those who earn at least $150,000 — with more than 296,000 high-income renters in 2020, more than triple second place Los Angeles.
They only made up 14 percent of the city’s renter population, nowhere near San Francisco’s leading share of 35.6 percent.


David Goldsmith

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Staff member
Apartment Rents Fall as Crush of New Supply Hits Market

Declines signal tenants may be maxed out on how much income they can devote to rent​

In Seattle, new-lease rents have tumbled 8% since August.PHOTO: JASON REDMOND/REUTERS
By Will Parker

Apartment rents fell in every major metropolitan area in the U.S. over the past six months through January, a trend that is poised to continue as the biggest delivery of new apartments in nearly four decades is slated for this year.
Renters with new leases in January paid a median rent that was 3.5% lower than they would have paid last August, according to estimates from listing website Apartment List. It was the first time in five years that rent fell every month over a six-month period, according to the same estimates.


David Goldsmith

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U.S. Multifamily Rental Market Suffers Drop in Annual Rent Growth in February Amid Weak Conditions
Oversupply Conditions, Especially in Sun Belt Markets, Expected To Weigh on Rent Growth
Record construction of new multifamily units is causing supply to significantly outpace demand, leading to a glut of available units on the market and downward pressure on rental rates. A total of 14 major U.S. markets are expected to set records for the most amount of new units added in a single year in 2023. (Getty Images)
Record construction of new multifamily units is causing supply to significantly outpace demand, leading to a glut of available units on the market and downward pressure on rental rates. A total of 14 major U.S. markets are expected to set records for the most amount of new units added in a single year in 2023. (Getty Images)
By Jay Lybik
CoStar Analytics

March 23, 2023 | 5:50 P.M.
Weak demand for rental apartments continued in February, resulting in the further deceleration of asking rents. Although rents still increased on average, the pace at which rents increased has slowed considerably. Since the end of 2022, annual rent growth nationally declined by 80 basis points to 2.9%, which is below the five-year pre-pandemic average of 3.2%. This trend is largely driven by the supply of new multifamily units significantly outpacing demand, leading to a glut of available units on the market and downward pressure on rental rates.

David Goldsmith

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Moody's: Multifamily Demand "Softened notably over the past few quarters"​

Apartment Vacancy Rate Increased in Q1​

CalculatedRisk by Bill McBride

13 hr ago

The big story here is that demand for apartments has softened recently, rents are falling in some areas, and there are a large number of apartments currently under construction that are expected to be delivered this year.
From Moody’s Analytics Senior Economist Lu Chen and economist Nick Luettke: Apartment temporarily oversupplied, Office approaching peak of vacancy, and Retail remained flat
The tide has been gradually shifting for the multifamily sector. “Pandemic fever” once fueled by discounted rental price and migration has gradually subdued as rent burden grew while economic growth and household formation slowed. Multifamily demand has softened notably over the past few quarters with net absorption even teasing slightly below zero in the first quarter of 2023. But because net move-outs based on preliminary trend were so small, we would not be surprised if the sign flips when more construction data gets verified and backfilled in the next few weeks. Overall, we remain cautiously optimistic for multifamily demand, given a few inter-playing factors including the cooling of the single-family housing market, resilient labor market, and positive household real income growth. While leasing was weak, construction activities were at a record high. Projects started in 2021 and early 2022, when rent growth has high and the cost of borrowing low, are expected to complete this year and next. First quarter delivery, however, was sluggish as elevated borrowing costs and a slight uptick of supply chain stress delayed construction timelines. Vacancy ticked up 13 basis-point (bps) to end Q1 at 4.71%. This was the biggest jump over the past two years, which pushed the current vacancy over the pre-pandemic level of 4.68%.
Compared to year end 2022, rent declines became more widespread in the first quarter, with 60 primary metros recording negative market rent growth ranging from -0.1% to -6.4%. At the national level, asking/effective rent declined by 1%/0.9% respectively, which not only helped level off renters’ rent burden, but also will work its way through taming shelter inflation in the headline CPI. On a year-over-year basis, both asking and effective rent growth slowed from over 17% in Q2 2022 to just around 6% in this quarter.
emphasis added
Moody’s Analytics (Reis) reported that the apartment vacancy rate was at 4.7% in Q1 2023, up from 4.6% in Q4 2022, and down from a pandemic peak of 5.4% in both Q1 and Q2 2021.
This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Moody’s Analytics is just for large cities.

Reis also reported the effective rents declined 0.9% in Q1 compared to Q4, and up 6.0% year-over-year. Effective rents declined significantly in the early stages of the pandemic, and rents are up 6.0% annualized over the last 3 years.

US Metros​

From Moody’s Analytics:
Multifamily vacancies rose in nearly half (37 of 79) of primary metropolitan areas, up slightly from 35 the previous quarter. Fort Worth (+90 bps), Nashville (+90 bps), and Tucson (+0.8 bps) topped the list due to weak demand. All three metros also saw asking and effective rents decline by more than a percentage point in Q1.
More than 1,000 multifamily units were delivered in Austin (1,512), Phoenix (1418), Nashville (1,275), Tampa-St. Petersburg (1,100), and Atlanta (1,017). Only one metro delivered over 1,000 units in Q4 comparatively. Among these five metros, the increased supply contributed to less than 100 bps uptick in vacancies.
Multifamily effective rents fell in 76% (60 of 79) of all markets. Fairfield County (-6.4%), Louisville (-3.6%), Greensboro/Winston-Salem (-3.3%), Syracuse (-2.8%), and Raleigh-Durham (-2.8%) were the markets observing the largest decline. Among those metros, 30 metros declined by at least 100 bps with 14 of them declining by over 200 bps.
We are seeing rents decline in some areas as more supply comes on the market. This should increase throughout 2023.
Apartment vacancy data courtesy of Moody's Analytics.

David Goldsmith

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Manhattan Apartment Rents Hit New Record High As Bidding Wars Intensify​

While multifamily rent growth is slowing nationwide, its biggest city is continuing to break new records.

The median rent for a Manhattan apartment was $4,124 in March, the highest on record, according to a the latest report from Douglas Elliman and Miller Samuel. March saw median effective rents — factoring in landlord concessions — rise 2% over February and more than 13% from the previous year.

Median effective rents in Brooklyn hit $3,459, up nearly 4% from February and 17% from the year before, while Queens rents were up 1.4% and 15.5%, respectively. The reversal of the pandemic’s outward-bound migration and mortgage rate increases driving high prices and bidding wars for rental apartments are keeping the city's rents elevated, Miller Samuel President Jonathan Miller told Bisnow.

“The rental market is certainly working against affordability,” Miller said. “The spike in mortgage rates have made rents less affordable, because it's pushed more people into the rental market.”

New lease signings in Manhattan last month were the second-highest on record as more inventory entered the market for the fifth consecutive month. With listing inventory rising from 4,532 units in March 2022 to 6,366 last month, vacancy ticked up from 1.9% a year ago to a still-paltry 2.5%.

“Even with the surge in inventory, there's still an imbalance between supply and demand,” Miller said, adding that renters are paying an average of 9% and 12% above the asking price in Manhattan and Brooklyn, respectively. “It's a tight market.”

The number of new leases being signed is partially related to new rental units coming online, Miller said, but it’s also one of the ripple effects of Signature Bank and Silicon Valley Bank’s failures and the Fed’s interest rate hikes keeping would-be homebuyers from signing up for mortgages and in the rental market.

With competition heating up, more and more renters resorted to bidding wars in March. Bidding wars accounted for 16% of lease signings in Manhattan, 20.2% in Queens and 24.9% in Brooklyn.

The market's relentless upward rise is pushing an increasing number of renters to sign two-year leases. The share of two-year deals jumped to its highest level since its June 2021 peak in Manhattan, reaching 56.3%. In Brooklyn and Queens, two-year leases accounted for 72.2% and 86.2% of signings, respectively.

“Consumers want to lock into a longer period because they expect rents to continue to rise,” Miller said. “With the spike in mortgage rates, I think many consumers anticipate rents will remain higher, at least over the near term.”

The current market dynamics — increased competition for apartments resulting in high prices, coupled with low inventory levels — will likely add to the risk of displacement for many of New York City’s lower earners, Miller said.

"The spike in mortgage rates have made rents less affordable, because it's pushed more people into the rental market," he said. "Open market rents are clearly working against affordability."

New York is somewhat of an outlier among multifamily markets nationwide, which largely have seen rent growth slow or turn negative since late 2022. Nationwide, multifamily rents were up 2.6% year-over-year in March, the slowest rate of growth since April 2021, according to Apartment List.

Manhattan's rent growth can also be attributed to its population. While the borough saw a 6.2% decline in net migration in 2021, it regained population last year, according to U.S. Census Bureau data reported by JLL.

David Goldsmith

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Manhattan, Brooklyn and Queens rents set records in March​

A blip, or the start of a new climb?

Just as Manhattan trees budded a full month early, the busy spring rental market arrived ahead of schedule, too, driving rents to top last summer’s all-time high.
Typically, New York prices pop in May when tenants seize on nicer weather to move. But the seasonal lift hit Manhattan’s rental market in March, driving the median monthly charge to a record $4,175, according to a report by the appraiser Jonathan Miller for Douglas Elliman.

New lease signings surged 21 percent from February levels to notch the second-highest number on record for March.
“Seasonally, we are entering the spring market, which peaks in the summer,” Miller said.

The borough’s median rent last month bested the previous high of $4,150, set in July. The jump also marked the first acceleration of year-over-year growth since November.
Manhattan rents in March stood nearly 13 percent above where they were last year. In February, annual growth was about 11 percent.
Miller has characterized Manhattan rents as moving sideways since cresting last summer. Despite March’s fresh high, the appraiser said he is not ready to say that trend is at an end.

“It is too soon to call a departure from that, but it is confirmation that rents have been flirting with new highs since the summer and periodically we see a month where rents break through,” Miller said.

Apart from the seasonal surge in demand, Miller said, continued high costs in the for-sale and mortgage markets contributed to last month’s rent growth.
Mortgage rates have discouraged would-be homebuyers, particularly first-timers; the average 30-year fixed rate Wednesday was 6.8 percent. Economic uncertainty has also led people to delay big financial commitments such as buying a home.
The trends have prompted more renters to stay put, squeezing the supply of apartments and sustaining near-record prices.
Across the East River, rents showed a similar pattern, jumping 2.7 percent in Brooklyn month-over-month to a record $3,493 in March as the number of new lease signings surged 37 percent, also hitting a new high.
Queens’ median rent rose to $3,300, the second highest on record, and the number of new leases signed was an all-time high for the month of March.

David Goldsmith

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April rents smash records in Manhattan, Brooklyn, Queens​

Manhattan’s median rent topped out at $4,241

Record-smashing rents reigned in New York City last month.
April prices upped the ante immediately after the Manhattan median rent in March topped last summer’s high. The borough’s median rent broke a fresh record at $4,241, according to a report by the appraiser Jonathan Miller for Douglas Elliman.

Leases with concessions weren’t any cheaper. The median net effective rent on those deals was a record $4,205 as landlords extended the fewest months of free rent since November 2019.
Brooklyn and Northwest Queens — the other city markets covered by the report — also notched all-time highs.

In Kings County the median rent hit $3,500 as the net effective rent rose to $3,473. Northwest Queens saw those metrics peak at $3,525 and $3,484, respectively.
Despite those staggering numbers, the pace of the city’s growth has continued to slow year-over-year.

Last month, Manhattan prices were 8 percent higher than a year earlier — the first single-digit increase since September 2021. By contrast, annual rent growth peaked at nearly 32 percent last April as pandemic discounts were reversed.
Month-over-month rent growth has hovered around 2 percent since peaking last July. In April, rents rose 1.6 percent from March, a slower rate than the 1.9 percent rise from February to March.

Miller has characterized this as rents moving sideways: Prices may edge up to a record high in any given month, but have effectively plateaued for more than half a year.
The rise in rents comes as state legislators rejected a plan by the governor to increase housing supply in the city by setting growth targets, incentivizing office conversions, extending a tax break for rental development, and allowing the city to raise its residential density cap and to legalize basement dwellings.