Slight Recovery in Multifamily?

• Recent reports suggest that, nationwide, there is a slight recovery in the multifamily market.
• But that recovery does not seem to have hit Texas yet.
• Its unclear whether Texas multifamily markets will recover in the next year.

Is there possible good news on the horizon for Texas multifamily owners? Some reports suggest that the second quarter of 2024 saw a noticeable uptick in apartment demand across the United States.. This shift in the rental market is particularly intriguing given the recent history of declining rental rates. As we delve into the factors driving this increased demand, it’s essential to consider its potential impact on future rental prices and the overall outlook for the remainder of the year.

A Resurgence in Rental Demand

First lets talk about the good news. That’s always more fun. According to Apartments.com, nationwide there were 170,000 units absorbed in the second quarter this year. And while 180,000 new units came online, that is the smallest gap in eleven quarters. In addition, rent growth was approximately 0.9% in June. 

Will this trend continue? And will it hit Texas? The increased demand for apartments has raised questions about the potential reversal of the downward trend in rental rates experienced in recent years. While it’s too early to definitively predict a significant and sustained increase in rental prices, several factors suggest that this trend may be stabilizing or even reversing in certain markets.

• Inventory Levels: The availability of rental units is a critical factor influencing rental rates. The demand/supply gap was the lowest in eleven quarters. If that gap continues to decline, that could lead to increased rents.
• Market-Specific Factors: Local economic conditions, job growth, and population trends will play a crucial role in determining rental rate fluctuations. Areas experiencing rapid population growth or economic booms may see more substantial rent increases compared to slower-growing markets.
• New Construction: I’m not telling you anything you do not know when I say that its really hard to get anything out of the ground right now. Between slowing rents, construction loan terms, and construction costs, new starts often just do not pencil. As a result, a shortage of supply in the coming years could increase rents.

Texas Does not Look as Rosy

I told you we were starting with the good news. And that was it. Unfortunately, its now time for the bad news. The big cities in Texas are not seeing rent growth. Indeed, according to the Apartments.com report, Austin had the biggest decline in rents of any of the top 50 markets. And San Antonio was near the bottom also. And year over year, the numbers do not look much better. The bottom line is that while demand is robust, the new apartments coming online just outpaces the demand.

So while the rest of the country appears to being seeing a little bit of a rebound in the multifamily market, its not clear at all that that is happening in Texas.

Outlook for the Rest of 2024

But will it come to Texas? Will it get better here? Predicting the exact trajectory of the rental market for the remainder of 2024 is challenging due to the numerous variables at play. 

However, based on current trends and expert analysis, several key factors will likely shape the market:

• Economic Conditions: The overall health of the economy will continue to be a primary driver of rental demand. A robust economy with steady job growth is likely to support sustained demand for rental housing.
• Interest Rates: Mortgage rates will influence the demand for rental housing indirectly. If mortgage rates remain elevated, it could continue to push potential homebuyers into the rental market.

While the second quarter of 2024 has shown promising signs for the rental market in the country, it hasn’t really happened yet in Texas. So it’s essential to approach the outlook with caution. The rental market is dynamic and subject to rapid changes. As the year progresses, it will be crucial to monitor key indicators such as rental rates, occupancy levels, and new construction to gain a clearer picture of the market’s trajectory.