The topic of the most recent ALN monthly newsletter, published just a few days ago, was a look at rent growth and its trajectory. At the national level, monthly gains peaked last year. This year through July, even with average effective rent for new leases appreciating by the same amount as in 2021, a notable development was the lack of a typical bounce in rent growth during the summer months relative to the first quarter.

For today’s post, we’d like to zoom in a little bit and look at some monthly market-level data to get a better idea for how the shifting rent growth trend is playing out more granularly.

As usual, all numbers will refer to conventional properties of at least 50 units.

Negative Monthly Rent Growth

In every month this year, at least one of the more than 140 ALN markets around the country has seen average effective rent for new leases decline during the month. The high point during the last six months was nine markets in negative territory for the month of February. Of those nine, only two experienced declines of more than 0.5% – to the tune of a 3% decline for both Honolulu, HI and Lake Charles, LA.

In subsequent months, the number of markets to experience negative monthly average rent growth fell from nine in February to seven, then two, then three, then one in June. July represented a shift. Six markets faced average rent declines during the month led by 80 basis point declines in Victoria, TX and Monroe, LA.

For the most part, the areas that have found themselves in negative territory in recent months have been in two types of markets: tertiary markets with an employment base skewed toward energy production and markets with a fairly large student housing component.  US Crude remains below pre-pandemic levels and student housing is of course more sensitive to the associated seasonal variance. No primary market has seen a negative monthly average effective rent this year.

Moderate Monthly Rent Growth

The number of markets with moderate monthly gains has followed a similar path in recent months to that of markets with negative growth. For the sake of this analysis, moderate monthly rent growth is defined as above 0% but below 0.5% given that national monthly growth has not been below 0.5% since February of 2021.

In February of this year, 27 markets around the country fell into this moderate growth category. That number winnowed significantly in the following months and reached a trough of only four markets in June. Once again, July provided a change with 11 markets falling into the moderate range as it has been defined.

The profile of markets to fall into this category in recent months is different and more varied. Gateway markets like Chicago and Washington DC found themselves in the moderate growth sector, but not since February. Other larger markets like Minneapolis – St. Paul, Baltimore, and Detroit also met the criteria in one month of the last six as did growth markets like Phoenix, Las Vegas, and Jacksonville. Once again though, the bulk of markets in this category have been smaller secondary and tertiary markets – especially the markets to find themselves in the moderate growth group more than once in the last six months.

Takeaways

The uptick in the number of markets with negative average effective rent growth in July may be an indication that summer-like results have ended early this year with the usually softer fourth quarter still ahead. It is also possible that July was a one-month blip with a decline to come in August. It is notable that both the number of markets with negative average rent growth and with moderate growth for July rose significantly.

Adding these two categories together also provides a picture of how conditions are shifting below the national average. After beginning the year with 42 ALN markets managing less than a 0.5% gain in average effective rent for January, that count steadily declined every month to a low of five markets in June before climbing back to 17 in July. Again, there is always a danger in trying to extrapolate too much insight from one month of data, but whatever else might be said, what can be said with certainty is that the clean downward trend of the last six months has been ended.

We have yet to see primary markets in either the negative growth or moderate growth baskets consistently or in a widespread fashion, but the number of major markets to exhibit moderate monthly growth has been increasing. As we move into the fall and winter months, it is reasonable to expect significantly more markets to join these two categories.

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