Last week, we looked at where the housing market is headed in 2019. This week, we’re taking a look at the rental market.
People are not only renting longer, but in some cases they prefer renting to buying a home. Developers are responding to this demand by building more units, which is holding down rents in some places. But supply continues to be a concern, especially at the lower end of the market, where high occupancy rates are pushing up rents.
The challenge when trying to discover how the rental market is faring is that the data can be contradictory. That’s because it depends on how each source gathers its numbers. Some restrict their data to large buildings. Others limit it to the listings on their site. Renters of single-family homes are usually excluded. As a result, the data can be confusing.
But while the numbers may not agree, the insights they offer can be useful. Below is a snapshot of what rental experts are predicting for 2019:
A wave of new apartments has held down rent price growth in the D.C. region, according to RealPage, a tech company that provides software and analytics for the rental housing industry. Washington added around 11,000 units in 2018. Another 16,000 are expected to come online in 2019. The influx is well above historical norms of 7,000 to 8,000 units per year. But this cycle, which started in 2010, has brought an average of 10,000 to 12,000 new units per year.
“D.C.’ s annual rent growth has run below the national average for eight full years,” said RealPage chief economist Greg Willett. “That says something about the volume of product that’s been brought online.”
Washington’s rent growth has been running around 2 to 2.5 percent, but Willett expects it to be around 1 percent in 2019.
Most of the units being built are high-end, luxury apartments, offering affluent renters the most choice. Renters are staying in place longer, especially at middle to lower-end properties. Before the housing crash, the share of renters who renewed a lease was around 40 percent. During this cycle, that number peaked at 53 percent.
“Few renters are moving around within the nation’s more moderately priced apartment stock, in part just because there are so few housing options available for all but the most affluent renters,” Willett said.
Willett said the effect Amazon’s expansion into Crystal City will have on the rental market is a bit of a wild card.
“What’s going to come in will be the cooler sort of stuff,” Willett said. “It will take a while [to transform Crystal City], particularly if as Amazon has indicated it is not jumping in and doing it all at once. Ten years from now, is Crystal City going to be cool? Maybe, but I don’t think that happens overnight.”
National Apartment Association
The NAA predicts occupancy rates will continue to be around 94 to 95 percent in 2019, with rent growth averaging 2 to 3 percent. Concessions — breaks landlords offer to lure renters — are declining.
Paula Munger, NAA director of research, expects healthy demand for apartments in 2019, even as developers continue to bring more buildings online.
“I don’t think we’re caught up,” she said. “There’s still a gap. … There is not enough [apartments] at all price points.”
Investment in D.C.-area apartment buildings is also strong. Sales of apartment buildings were up 27 percent from 2017, with the most transactions in Georgetown, Southeast Washington and Fairfax.
“The apartment industry is still providing a good return on investment,” Munger said. “Between [rising] mortgage rates and the lack of supply on the single-family side, it’s just super hard to transition into homeownership right now. That’s just part of the reason the industry is so optimistic for” 2019.”
Because Arlington County will deliver around 5,700 new apartments between now and 2021, Munger doesn’t anticipate Amazon’s arrival to cause much of a ripple in the rental market.
“It may be that we’re well positioned to accept all those workers and have housing for them,” she said.
Favorable economic factors pushed the national average monthly rent to $1,419 by the end of 2018, according to RentCafe, a nationwide apartment search website using data provided by Yardi Matrix. The data is from buildings containing at least 50 units.
The average monthly rent in the Washington region rose to $2,461. The fastest rent increases were in District Heights, Manassas and Temple Hills, while the slowest rent increases were in Chevy Chase, Bethesda and Vienna.
Manhattan still has the highest rental prices in the country, with average monthly rents of $4,200, followed by San Francisco ($3,609) and Boston ($3,292).
One indication of how cost-conscious renters are these days, the terms “cheap apartments” and “studios” were nearly half of all apartment-related searches in Google. But “luxury apartments” also accounted for a significant number of searches.
In its year-end report, the apartment search site stated, “It is very interesting to note that even though many consumers are turning away from home ownership, the rental market has not moved significantly on average.”
Abodo, which pulls data from its 1 million listings across the country, found that one-bedroom monthly rent prices fell by 2.1 percent, while two-bedroom monthly rents were essentially flat in 2018. The national median monthly rent was $1,025 for a one-bedroom unit and $1,255 for a two-bedroom.
Rents increased in 28 states last year, as well as the District. They decreased in 22 states. South Dakota was the only state where rents held steady.
San Francisco was the most expensive city to rent at $3,535 a month, while Las Vegas saw the biggest rent increases on average (4.9 percent).
“Changes in the market are adding up to create a more favorable climate for renters,” said Joshua Clark, an economist at HotPads. “Slowing rent growth eases pressure on renters’ wallets, new construction gives renters more options, and the rise in move-in specials indicates that supply is getting closer to meeting demand. Renters looking to move right now have advantages that they haven’t had in years, but the opportunity to benefit from this market may be short-lived. Rising interest rates coupled with increasing home prices could spur demand for rentals over the next year, ultimately making the market more competitive again.”
Zillow senior economist Aaron Terrazas said it is likely rent growth will remain below inflation, or less than 2 percent at an annual pace. He predicts occupancy rates at older buildings will remain high, while newer buildings could experience more vacancies.
“We expect fewer renters to transition into homeownership in 2019, so occupancy rates in older buildings — particularly older buildings at the most affordable price points — should remain high, while newer and higher-end unit occupancy could deteriorate,” Terrazas said.
Although newer buildings tend to command higher rents than older ones, the gap between the two has grown wider in recent years.
“In part because of the high costs of construction, new apartment construction has tended to skew toward the top of the market,” Terrazas said. “This is part of what has driven diverging rent trends for higher-end versus lower-end rentals. Rent growth has slowed much more sharply at the top of the market than at the bottom.”
In its post on trends for 2019, Apartment Guide predicts renting will become more streamlined as apartment buildings adapt to new technology. Apartment buildings will outdo high-end condo buildings when it comes to amenities. Expect to see yoga studios, bike valets, rooftop pools, car-charging stations and retail in new buildings.
Security will go beyond doormen and front desks. Renters will take advantage of smart locks, in-home cameras and wireless home security systems.
While strong WiFi and cellphone reception are essential, renters will also be looking for built-in charging stations with USB outlets.
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