The rental market has changed significantly over the past several years. It shifted from a landlord’s market—characterized by low supply, high demand, low vacancy rates, and minimal or no concessions—to a renter’s market, where supply exceeds demand, high vacancy rates, and concessions are standard. According to RealPage, Yardi Matrix Inc., Redfin Corp, CBRE Group Inc., and Knightvest Capital data, the market could begin to even out next year. Here’s why:
As more units become available, the supply curve is anticipated to shift, potentially balancing demand with supply. RealPage Inc. predicts that the demand for apartments in 2025 will be approximately 5% higher than in 2024. However, many of the significant apartment markets monitored by RealPage are expected to experience their peak supply by the end of 2024, while others will continue to see strong new-unit deliveries for several more quarters.
New Construction and Market Favorability
According to Redfin, Inc., rent growth in 2024 has been slow, with some areas even experiencing a decline due to significant new construction. The Sun Belt region has seen the most considerable rent decreases, which is unsurprising given the high level of new apartment development. In November, asking rents in the Austin, Texas, metro area dropped by 12.4% compared to the previous year, marking the most significant decline among the markets analyzed by Redfin. This was followed by Tampa, Florida, with an 11.3% decrease; Raleigh, North Carolina, with an 8.4% drop; Jacksonville, Florida, at 7.5%; and Nashville, Tennessee, with a 7% decline.
“Renters in areas experiencing a construction boom are currently in a favorable position. Affordability is improving as rents decline and wages increase, and there is a greater variety of options available with more new apartment buildings opening,” stated Sheharyar Bokhari, a senior economist at Redfin. “As construction begins to slow down, rents will likely rise again. However, 2025 is shaping up to be a renter’s market, with the potential for the gap in affordability between buying and renting to widen.”
Rent, or Purchase a House?
Though the market favors renters seeking to move, many prefer to stay in their current apartments. In 2024, the national apartment lease-renewal rate rose to an impressive 62.2%, up from 60.2% the prior year, as reported by Yardi Matrix Inc. Additionally, across the markets they monitor, an encouraging 93.6% of rental apartments are currently occupied, just shy of the 94% rate achieved in 2023.
Given the housing affordability crisis, renting continues to be widely embraced and the only viable choice available for some. A recent survey by Knightvest Capital, a distinguished multifamily firm in Dallas, has highlighted that the primary reason individuals opt to rent rather than own a home is the significant cost associated with homeownership, as indicated by 63% of renters. Moreover, 59% appreciated the reduced maintenance and repair obligations, while 34% valued the increased flexibility to relocate, highlighting the evolving preferences in today’s rental landscape.
Compared to seventy percent in last year’s survey, Sixty percent of respondents indicated they would be more likely to buy a home if interest rates decreased.
The average monthly mortgage payment for a new home in the U.S. is approximately 35% higher than apartment rents, according to research by CBRE Group Inc. (NYSE: CBRE). Since late 2019, average mortgage payments, including taxes, have increased by 75%.
Future Growth
CBRE forecasts that multifamily rents will grow at an annual rate of 3.1% over the next five years and that the premium for buying a home compared to renting will decrease to 32% by the end of next year.
Daniel Ebner, the president of Knightvest Residential, stated in an interview that interest rates and expectations regarding their future movement have significantly influenced activity in the multifamily market. This year, transaction volumes have decreased across various property types, including multifamily.
Due to the current challenges in the housing market, particularly the inability of many households to purchase homes, the demand for rental housing remains strong. Ebner noted that several renters have transitioned from single-family homes to rental units, partly because of increasing property taxes, maintenance expenses, and other related costs. In the firm’s survey, 31% of renters reported having previously owned a home, although the specific reasons for their shift to rental housing were not disclosed.
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