MNI INTERVIEW: US Rent Growth Seen Moderating In '22 - Yardi

The surge in rents for new U.S. tenants should ease up over the next year and could soften to around half of what was seen in 2021, Doug Ressler of real estate data firm Yardi Matrix told MNI.

Asking rents, the rents asked of new as opposed to incumbent tenants, have skyrocketed and reached a new high of 15.4% over the 12 months ending in February, likely contributing close to three-quarters of a percentage point to the consumer price index and about a third a percentage point to PCE inflation later this spring and summer, he said.

Still, despite February's monthly increase that defied regular seasonal patterns, cooling pressures on asking rents will likely bring down increases late this year. "We anticipate a stabilization of rent growth as seen prior to the pandemic," wrote Ressler, business intelligence manager at Yardi, in response to emailed questions.

That may not mean that that multifamily asking rents will get back to the 2.8% 10-year average growth rate in the next year or two. "It is still too soon in the cycle to have data to add better definition," he said about the Yardi Matrix and RentCafe index of average asking rent on multifamily units.

The increase in asking rents has been driven by surging housing demand amid a "fundamental" change in work-from-home attitudes and the failure of housing supply to keep pace, said business intelligence manager Ressler.

"Nationally, occupancy rates are up 120 basis points year-over-year and growth is strong in all markets.," he said. "Fundamentals continue to be healthy in the single-family rental sector, prompting asking rents to grow on par with multifamily."

IMPLICATIONS FOR POLICY

The FOMC's March projections saw its preferred price measure, core PCE inflation, slowing to 4.1% this year from 4.9% in 2021. Housing services represent about 15% of the PCE price index. In CPI, owners' equivalent rent was up 0.4% in February and 4.3% from a year earlier. Rent of primary residence rose 0.6% in February and 4.2% from one year ago.

The two main rent indexes, which constitute 31% percent of the overall CPI index and nearly 40% of core, are published by the BLS and lag developments in asking rents for two reasons. The incumbent tenants generally have leases that fix their rent payments for 12 months or more and because of BLS methodological reasons that can add an additional lag of six months.

Ressler said "the recent rate hike by the Fed will benefit commercial real estate on a long-term basis. The gradual move now by the Fed is a necessary step to help achieve the second part of its dual mandate: achieving price stability, a precondition for a sustainable healthy labor market. The confluence of these two objectives will help to sustain the CRE expansion."

Fed Governor Christopher Waller last week cited various measures of asking rents, and said some some recent research suggests the rate of rent inflation in the CPI will double in 2022. "With housing costs gaining an ever-larger weight in the inflation Americans experience, I will be looking even more closely at real estate to judge the appropriate stance of monetary policy," he said.