TimbuckDo’s Post

The U.S. median rent/income ratio for market-rate apartments has recorded 15 straight months of decline and that's a positive thing for the industry and renters alike. There are a lot of things to discuss related to this chart so let's dive in. Market Forces: --- Supply's impact on rent growth (though also the brief 2022 pause in demand) has resulted in nearly a year of stagnant rent growth for the U.S. overall. Interestingly enough, rents haven't fallen on a YOY basis at any point during that stretch, which leads to point #2 below... --- Income levels continue to increase. There is a lot of noise in the recent economic data, and I'm not here to suggest that the current state of the economy is flawless. Some signals aren't necessarily as encouraging as - say - this same time last year. But the point at hand is that wages have steadily grown due to an overall resilient economy. Where the Market(s) Stand: --- From a purely rent/income based perspective, rents are now at their most affordable level since January 2021. And the monthly data (albeit far more noisy) actually suggests we may be back to pre-pandemic rent/income levels of about 22%. -- This is a trend happening in almost all markets, by the way. Out of 48 markets with enough sample, 42 markets see May 2024 rent/income below May 2023’s figure (the six exception markets: Anaheim; Cleveland; Denver; Greensboro; Inland Empire; Memphis; and San Jose. Oh and by the way, more than half of the 50 largest U.S. metros are at their lowest level in at least three years (or late spring 2021). What's Next: --- Other data sources such as the Atlanta Fed's wage tracker also supports the idea of continued, strong wage growth as well. That dataset shows we’re at roughly one and a half years in which wage growth has outpaced rent growth. So with that in mind, I think it’s reasonable to suggest that the U.S. rent/income ratio actually backtracks even further before eventually stabilizing sometime in the second half of 2025/early 2026. Other Influences: --- There may be a few ancillary factors that aren't enough to drive the data on their own, but a growing share of “renters by choice” may be the best way to summarize that. Some of the growing share could be lifestyle driven, while some could be choosing to wait until the single family market loosens up a bit. A Crucial Footnote: --- Please bear in mind this data reflects the institutional grade, market-rate multifamily sector only (~40% of the total multifamily housing stock across the U.S.). I'm not proposing that there aren't acute affordability headwinds in more nuanced data because doing so is just burying your head in the sand. I won't wax poetic on the myriad of challenges there because others have already done a great job of summarizing things. --- All is to say then, yes affordability is a concern for certain segments of the rental housing market. It's just doesn't show up as prominently in the institutional grade, market-rate subset.

The U.S. median rent/income ratio for market-rate apartments has recorded 15 straight months of decline and that's a positive thing for the industry and renters alike. There are a lot of things to discuss related to this chart so let's dive in. Market Forces: --- Supply's impact on rent growth (though also the brief 2022 pause in demand) has resulted in nearly a year of stagnant rent growth for the U.S. overall. Interestingly enough, rents haven't fallen on a YOY basis at any point during that stretch, which leads to point #2 below... --- Income levels continue to increase. There is a lot of noise in the recent economic data, and I'm not here to suggest that the current state of the economy is flawless. Some signals aren't necessarily as encouraging as - say - this same time last year. But the point at hand is that wages have steadily grown due to an overall resilient economy. Where the Market(s) Stand: --- From a purely rent/income based perspective, rents are now at their most affordable level since January 2021. And the monthly data (albeit far more noisy) actually suggests we may be back to pre-pandemic rent/income levels of about 22%. -- This is a trend happening in almost all markets, by the way. Out of 48 markets with enough sample, 42 markets see May 2024 rent/income below May 2023’s figure (the six exception markets: Anaheim; Cleveland; Denver; Greensboro; Inland Empire; Memphis; and San Jose. Oh and by the way, more than half of the 50 largest U.S. metros are at their lowest level in at least three years (or late spring 2021). What's Next: --- Other data sources such as the Atlanta Fed's wage tracker also supports the idea of continued, strong wage growth as well. That dataset shows we’re at roughly one and a half years in which wage growth has outpaced rent growth. So with that in mind, I think it’s reasonable to suggest that the U.S. rent/income ratio actually backtracks even further before eventually stabilizing sometime in the second half of 2025/early 2026. Other Influences: --- There may be a few ancillary factors that aren't enough to drive the data on their own, but a growing share of “renters by choice” may be the best way to summarize that. Some of the growing share could be lifestyle driven, while some could be choosing to wait until the single family market loosens up a bit. A Crucial Footnote: --- Please bear in mind this data reflects the institutional grade, market-rate multifamily sector only (~40% of the total multifamily housing stock across the U.S.). I'm not proposing that there aren't acute affordability headwinds in more nuanced data because doing so is just burying your head in the sand. I won't wax poetic on the myriad of challenges there because others have already done a great job of summarizing things. --- All is to say then, yes affordability is a concern for certain segments of the rental housing market. It's just doesn't show up as prominently in the institutional grade, market-rate subset.