HOUSING MARKET DYNAMICS INDICATE LONGER-TERM SECTOR TAILWINDS
Rental demand momentarily settles after an outstanding stretch. The multifamily sector entered 2022 in a historic position of strength. National vacancy was 120 basis points below any quarterly recording spanning 2000-2019, stimulating a competitive market among tenants, which accelerated rent growth. The average effective monthly rent in the U.S. rose nearly 16 percent in 2021, with annual jumps eclipsing 25 percent in several major Sun Belt markets. However, in the first half of 2022 — particularly in the second quarter — demand began to normalize as roughly 80,000 fewer households were created in the U.S. relative to the same six months of 2021. The cooldown was prompted by economic headwinds, as well as inflationary impacts on household budgets, including adjusting for higher rent payments. Even with a slower second half, vacancy at midyear leaves ample leeway before rates in most metros approach pre-pandemic levels.
Top-performing markets in 2021 had the most notable inflections. Many of the locations that were standouts during the pandemic took a step back in the first half. After totaling more than 72,000 units of net absorption during the second half of last year, Atlanta, Dallas-Fort Worth, Houston, Las Vegas, and Phoenix had a combined negative measure in the opening six months of 2022. The aggressive building pace in these markets is creating some near-term pockets of oversupply amid temporary demand slack, as some residents rebalance living costs after historic hikes. Nonetheless, migration patterns and thriving labor markets support elevated construction long term.