Apartment List says the national price of rent is up for the second month after declining for six straight months. The measures are useful but only if you understand how best to use the report.
Apartment List reports rising prices after six months of declines. However, even a cursory glance at the chart shows seasonal variations that makes the data mostly unusable.
Here’s the Apartment List Report for March of 2024 to discuss.
For the last two years seasonal declines have been steeper than usual and seasonal increases have been milder. As a result, year-over-year rent growth dipped into negative territory last summer and has remained there since, currently sitting at -0.8 percent. In other words, as the market has cooled, apartments are on average slightly cheaper today than they were one year ago.
Let’s stop right there because they aren’t.
Apartment List does not measure all rents, only new leases. And New leases are approximately 9 percent of the market.
While new leases may be cheaper, and likely are it’s such a tiny percent of the market that it is wrong to claim prices are falling.
Seasonal adjustments compound the errors.
Zooming in a bit, 81 of the nation’s 100 largest cities saw rents go up in March. But on a year-over-year basis, rent growth is positive for only 42 of these cities. Many of the steepest year-over-year declines remain concentrated in Sun Belt cities that are rapidly expanding their multifamily inventory, such as Austin (-7.1 percent year-over-year), Atlanta (-5.3 percent), and Nashville (-4.8 percent).
Again, these are prices for new leases. Austin is so overbuilt, that the city may have actual declines even on existing lease renewals. Unfortunately, Apartment List does not track this, so the reported declines are much too high.
Apartment List Metro-Level Rent Data
That is a very interesting chart. Kudos to Apartment List for producing it.
The areas in blue are places where the prices of new leases is falling and red shows metro areas where the price of rent is rising.
It’s hardly a uniform picture to say the least.
I do not know if the data is properly weighted, but if it isn’t that’s another source of error in the national reports.
Apartment List Conclusion
March’s 0.6 percent rent increase marks a shift into the busy season for the rental market, despite year-over-year rent growth remaining negative at -0.8 percent. Historical seasonal patterns suggest that rents will continue trending up for the coming months, but we still expect rent increases to be moderated by a robust construction pipeline delivering new units throughout the remainder of 2024.
Understanding the Apartment List data, that is an accurate assessment of their data. Since they do not use seasonal adjustments, their month-over-month numbers are highly likely to rise.
Their comment about construction is also accurate.
The problem is the data is of limited national use for reasons stated: Seasonality, new lease vs renewals, and national weighting. Apartment List needs to do a much better job of explaining the limits and flaws in their reporting.
But if you live in Austin or any of the blue areas in the above chart, and your lease is up for renewal, you may have a good opportunity to move or negotiate a rent reduction.
CPI Hot Again, Rent Up at Least 0.4 Percent for 30 Straight Months
For over two years, analysts said rent was declining or soon would be. But for the 30th consecutive month, rent was up at least 0.4 percent. Gasoline rose 3.8 percent adding to the misery.
Whereas Apartment List shows no seasonal adjustment, the BLS adjustment have a lagging effect because of smoothing.
Rent is up at least 0.4 percent for 30 straight months but that is not the way it works in practice.
Rather, rent adjusts in one fell swoop once a year. And most leases renew in May through September. Thus we have seasonality within seasonality.
For discussion, please see CPI Hot Again, Rent Up at Least 0.4 Percent for 30 Straight Months
Because of the BLS lags, analysts have turned to Apartment List, Zillow and other sources that are more timely.
They may be more timely but the errors are worse. It is a huge mistake to assume new leases (9 percent of the market), set the price and not the 91 percent of existing lease renewals.
Add in seasonality and weighting issues, and the reports we have been hearing for two years, that rents are declining, are bogus.
That is the trap Apartment List fell into as well.
Sticky-Price CPI Is Up 4.4 Percent From a Year Ago
Also see The Atlanta Fed Sticky-Price CPI Is Up 4.4 Percent From a Year Ago
I will update Zillow rent prices shortly. Like Apartment List, it is also a flawed measure that people rely on because it says what they want to hear.
More discussion coming up.
“Austin is so overbuilt, that the city may have actual declines even on existing lease renewals.”
Since used cars getting cheaper as they age, means there is an “oversupply” of cars and all…..
In the real world, Austin will be overbuilt when; and only when; leasing an apartment’s volume worth of nonbuilt space, costs more than leasing a similar volume covered by walls and a roof.
Until then, Austin is in no way “overbuilt”. Since until then: Covered space is still more valuable than non covered space.
I’m getting ready to raise rents on `40 tenants
up about 8% – I held off for 6 months(ie 18 month) since last increase
but now with Inflation raging – taxes up 15%, insurance up 38%
no choice
btw was accused few months back of pushing retirees out
well now they can really complain –
Joe Biden
1600 E. Pennsylvania Ave
Cesspool DC
Continuing leases are still going up 8% YoY here in California.
Also, are new lease prices *really* as high as Apartmentlist claims, given that many metro listings are currently offering one or two months of free rent for signing a new lease?
Mish, I’m noticing even rent for 3 bedroom, 2.5 bathroom, 2 car garage townhomes in Panama City Beach are renting for same price as 2 to 3 years ago.
This is not entirely accurate – “It is a huge mistake to assume new leases (9 percent of the market), set the price and not the 91 percent of existing lease renewals.” That tends to work in the short term, but over the course of a year or two, renewals tend to follow the same price path as new leases.
What’s currently happening in many of the major markets is that operators are pricing new leases a bit cheap relative to renewals in order to keep buildings full. At some point, that does in fact impact renewal rents. Econ 101 – When the price of a substitute product falls (the empty unit across the street), so does the price of your product (the unit you’re in). As an operator, we hope that the price concessions we’re making to fill up one of our newest assets don’t persist, but our sense right now is that our renewal rates will likely follow the same path as the new lease rates. As you say, not in terms of outright declines in nominal rents, but very likely through significantly lower lease over lease rent growth on renewals. We expect it to become evident in 6-9 months when we try to renew people in occupied units. Renters today are smart. They’ll look online and see what the new lease rates are and use that to set expectations. If there is too much of a gap, they’ll scoot.
IWM might indicate troubles ahead for small businesses and the regional banks.