Q2 2024 MULTIFAMILY U.S. INVESTMENT FORECAST

Multifamily indicators reveal substantial demand momentum. The number of occupied apartments nationwide surged by nearly 104,000 rentals from January through March 2024, the strongest first quarter net absorption on record. Over the opening three months of the past 30 years, only about 12,500 units were absorbed on average. This abnormally robust start to 2024, with traditionally strong spring and summer months still to come, should put net absorption on track to reach a three-year high, barring any unexpected setbacks. Several other indicators help demonstrate the ongoing improvement. In April of this year, the average amount of time that an apartment in the U.S. sat vacant dipped to 28 days, an eight-month low and a significant recovery from 34 days in December of 2023. The number of new lease applications per unit also rose to an eight-month high in April, while the rate of signed renewals reached the strongest measure since August 2023, reflecting demand from both new and existing tenants. Despite these favorable trends, the influx of new supply remains a major influence on vacancy and rents.

Apartment completions notch a new high. More than 135,000 units finalized across the U.S. from January through March 2024, the largest quarterly tally on record. Exemplifying the hurdles presented by a historic supply infusion, even record-setting demand was unable to keep pace, as vacancy rose by 10 basis points during the first quarter to 5.9 percent. At the same time, construction remains clustered with just eight major U.S. markets — Atlanta, Austin, Charlotte, Dallas-Fort Worth, Houston, New York City, Orlando and Phoenix — combining for more than one-third of national completions during the first quarter. These same eight metros, meanwhile, accounted for an even higher share of the country’s overall net absorption during that span, exhibiting a relative alignment between development and demand. Nevertheless, concession use has accelerated in many construction-heavy markets, taking momentum out of rent growth nationally across all apartment classes. Looking beyond 2024, the construction pipeline is smaller, but remains sizable for 2025 and 2026. A recent pullback in multifamily permits, however, may signal a longer-term, more substantial, slowdown is brewing.

Housing dynamics lead to near-term turbulence. The growing affordability gap warrants elevated multifamily construction, despite supply-side pressure creating temporary vacancy and rent headwinds. During the first quarter of 2024, the difference between a typical monthly mortgage payment on a median-priced home and an average apartment rent in the U.S. remained in excess of $1,200, tripling over the past three years. That extreme gap will likely persist as the median home price hit an all-time high in early 2024, while the average 30-year mortgage rate remained near 7 percent. A shortage of houses on the market, with listings in March down 45 percent relative to the trailing 20-year average, is reinforcing values.