Rental Prices Skyrocketed In The Past Two Years, So Reports Of A Slowdown Should Be Of Little Concern For Multifamily Investors

U.S. rent prices are slowing down, according to several recent reports. But what does that mean?

Multifamily rent prices skyrocketed 20% to 30% in the past two years, so when any report shows that rent is "slowing," it's not necessarily time for multifamily landlords, owners and investors to hit the panic button. 

"No renter is talking about how cheap their rent is these days. The growth rate has slowed," real estate expert and Gray Capital CEO Spencer Gray told Benzinga. "Areas like Phoenix and Tampa saw some real decline, only because it had grown by 45%. But the Midwest is still in some very positive territory and still growing." 

The U.S. relies on the consumer price index (CPI) as a barometer of what's happening in the rental market, which does not necessarily reflect reality, Gray said. 

The CPI measures the average change over time in the prices consumers pay for everything from goods and services to utility, fuel, food and rent. Gray contends that CPI data doesn't accurately reflect rent growth and lags new-lease market rents by roughly one year.  

"If rents are coming down, it's percentage points over that previously high rate of growth which is coming down," he said. "There are so many metrics out there looking at rent growth, but the way the CPI capsulizes it is different than what people see on postings to places like apartments.com. The CPI is a good metric when looking at what people are actually paying, but going on the market today to rent an apartment is different.  There's nothing wrong with CPI, but the reality is the numbers are a reflection of what happened 12 months ago." 

A recent report on Yahoo Finance said that the rental market is "slowly inching towards normal." But the report also adds that rental prices are staying high because of increased rental supply and high-interest rates, which keep people from buying. 

"There's a million (rental) units in the pipeline right now, especially in the Sun Belt, which is experiencing a deluge of supply, all in the higher end, Class A luxury units," Gray said. "At the same time, the developers working on them have construction loans coming due and they carry costs with interest rates on materials going from 4% to 9%. They're trying to lease them as quickly as possible to stabilize their situation and eventually put permanent financing in place." 

But with high-interest rates and the possibility that rental rates will come down soon, could this be a good time for multifamily investors to sell? 

Gray says, "It depends," and while financing and capital constraints are the determining factors, the bigger question is, "Why would you?"  

"You're not going to be selling at the top and by no metric is this a good time to sell and bring an asset to the market," he said. "The fundamentals are still strong with an expected rent drop off not until 2025."

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