According to a forecast by Moody’s Analytics, multifamily rent growth will drop in 2023 to less than half of the 7.8% year-over-year increase that was recorded in 2022.
In addition to a deteriorating labor market, the business predicted that a mid-year rebound in single-family activity would help rebalance the housing market and bring multifamily performance closer to long-term averages.
This may be partially caused by what appears to be a trend of slowing inflation. According to Moody’s analysis of the Producer Price Index data for December 2022, which was published on January 18 and showed that the headline PPI was down 50 basis points from November (seasonally adjusted), inflationary pressures are beginning to diminish. To put things in perspective, the headline PPI was significantly below the peak of 11.7% in March 2022 and at its lowest annual rate since March 2021, when the index was at 4.1%.
Falling inflation has traditionally had a strong correlation with deteriorating labor market conditions and higher unemployment rates, particularly when it precedes a recession. People without jobs frequently live with relatives or share housing with others in order to reduce their living costs. Additionally, fewer people would be able to afford to pay more to secure an apartment as a result of lower average salaries.
Data indicating the single-family housing market may be bottoming out, with building permits down 29.9% year over year and 1.6% from the previous month in December, would also have an impact. From the same point in 2021, housing starts were down 21.8%. But progress is still being made, at least for the time being. Although the Fannie Mae analysis suggesting financial rewards were what truly prompted consumers to buy houses earlier in the pandemic would raise some doubts, the greater short-term supply could attract more buyers. The cost of a mortgage is still greater than it has been in a while. The National Association of Realtors also reported that existing house sales in 2022 were at their lowest level in a decade, down 17.8% from 2021, as Moody’s pointed out.
Then there is the massive amount of multifamily housing that is being constructed; according to Moody’s, about 300,000 units are scheduled to come online this year across tracked U.S. markets. This represents a huge increase from 2022 and would set a database record for the number of completed apartments. The acceleration of stalled multifamily projects due to the slowing of inflation—largely as a result of lower energy and material costs—confirms our upbeat projections for this level of activity in 2023.
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