Between 2020 and 2022 monthly asking rents increased by 15 percent marking the fastest spike in rents in nearly a century. This statistic coupled with ever-rising home prices have pushed some casual observers into a state of fear regarding an impending crisis. Between these factors and tightening credit, steeply rising interest rates, and distress within the commercial sector at large, many are making comparisons to the Great Recession of 2008–2009. Being fully immersed in multifamily real estate, our team at Roers Companies continually watches the impact of these economic indicators. While some factors may be similar, the reality is that today’s market is wildly different from what we saw 15 years ago.
The multifamily market is actually much stronger today than it was during the Great Recession. This stems from a number of factors including lower vacancy rates and steady rent growth, as well as stronger economic fundamentals such as wages increasing and unemployment rates decreasing. In this article, we will take a deeper look into each of these factors.
1. LOWER VACANCY RATES
Vacancy rates of 2009 were more than two times what they are today. According to the National Apartment Association, the United States vacancy rate for multifamily properties peaked in 2009 at 13.1 percent. While in the second quarter of 2023 — according to the U.S. Census Bureau — national rental housing vacancy rates were 6.3 percent. The comparison of these two numbers suggests that absorption of new rental housing stock — as well as demand for existing apartments — is stronger now than during the Great Recession.
2. STRONGER RENT RATES
In 2021, rents grew at a rapid and unsustainable pace, with an average year-over-year growth rate of 10.1 percent — and some markets exceeded 20 percent year-over-year increases. While rent growth has cooled since then, it is still growing in most markets – but at a normal, healthy pace. Rents in August were 0.28 percent higher than in August 2022. While these statistics don’t come close to the record-breaking increases seen in 2021, they are in stark contrast to the rent declines that were seen during the Great Recession. During that time, rent growth declined 3.19 percent from 2007 to 2009 as vacancy rates rose and household incomes diminished. The delta in these statistics is good news for multifamily owners and investors; low vacancy rates at stable rent rates mean positive returns.
3. INCOME GROWTH
During the Great Recession, wages fell faster than rents, making housing less affordable for many Americans. According to data from the Bureau of Labor Statistics, real median weekly earnings for all workers fell by 3.6 percent from 2007 to 2009. On the other hand, today incomes are outpacing rents, a trend likely to continue through at least 2024. The average year-over-year U.S. wage growth has exceeded apartment rent growth 5.3 percent to 0.3 percent from November 2022 through August of 2023.
4. DECREASING UNEMPLOYMENT RATES
As of September 2023, the unemployment rate sits at 3.8 percent. In 2008 and 2009, the U.S. unemployment rate peaked at 10 percent. Today, the economy is adding jobs at a rapid pace, with an average of 460,000 jobs added per month. According to data from The Bureau of Labor Statistics, in September alone, the U.S. economy added an estimated 336,000 jobs. In 2008 and 2009, the economy was losing an average of more than 700,000 jobs per month. Today’s numbers illustrate a very positive shift for market-rate apartments’ affordability as well as overall rental housing demand.
Vacancy rates, wage and rent growth, as well as declining unemployment rates all add up to strong multifamily fundamentals. Despite the comparisons some are tempted to make to the Great Recession, multifamily properties remain a compelling investment option. As a leader in multifamily real estate investment, development, construction, and property management, Roers Cos. has a proven track record of success in developing and managing high-quality multifamily properties. We are committed to providing investors with opportunities for stable investments with the potential for attractive returns.
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BLS, CNN, CNBC, Harvard Joint Center for Housing Studies, HUD User, iProperty Management Realtor.com, RealPage, United States Census Bureau, The Washington Post, The White House