Rental Rates Are Softening

The second quarter slowdown in rental rates is being attributed to developers building the most new apartments in 30 years in response to rising rents, and Millennials settling down and into homeownership.

Data from RealPage Inc show that rents increased 2.3 percent year-over-year in the second quarter of 2018, the lowest spring growth since 2010. Notably, rental growth was soft or flat even in major cities like Seattle and Washington D.C. as a result of weakening demand and lots of new supply. Census Bureau data show that hte U.S. added 1.3 million homeowner households year-over-year in quarter one 2018, and lost 286,000 renter households. Realtor.com reports that developers are expected to add 300,000 new units over the course of the next year.

Little concern has arisen that the softening could have broader economic repercussions for the U.S. financial system. Compared with the last real-estate crash, owners say there are unlikely to be many foreclosures because they are carrying much less debt. Jay Hiemenz, president and chief operating officer of Phoenix-based Alliance Residential, an apartment company, said banks are only giving loans to developers for about 65 percent of the cost to build a project, compared to 80 percent or more previously. “Absent some shock that none of us can see, we will have a softer landing,” he said.

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