Multifamily Rents Are Starting To Fall Across Texas
Apartment rents are expected to drop across Texas’ major metros through the balance of 2023 as the delivery of new units runs way ahead of demand.
Of the 113 major Texas submarkets analyzed by RealPage, 1 in 5 are experiencing rent cuts. With the exception of Austin, negative growth hasn't yet materialized at the metro level, but that will likely change as positive numbers seen in the first half of 2022 move outside of annualized calculations.
“About 80% of Texas submarkets are still experiencing positive year-over-year rent growth,” RealPage Senior Director and real estate economist Carl Whitaker said during a Tuesday webinar. “That may not be true by the time we get to September.”
After a strong start to 2022, economic turmoil caused rents to come down about 10 basis points in the third and fourth quarters, which wasn’t a huge decline but was enough to kill momentum heading into 2023, RealPage Manager of Client Success and Market Analytics Dustin Weaver said.
“You have a weaker-than-average start to the year that is now replacing what was a stronger-than-average early 2022,” Whitaker said, adding that the January-to-June rent growth of 1.3% was only about 40% of the typical year-to-date performance.
The market has turned most acutely in Austin, where rent growth dipped into the negative in June. The market also has one of the lowest occupancy rates in the country at 93.3%, according to RealPage data.
“Not many markets across the country are sputtering along quite the same way Austin is,” Whitaker said. “Among major metros, you really only have Phoenix, Vegas and maybe Sacramento that are matching the degree of weakness that is ongoing here in the Texas capital.”
Annual absorption remains positive in Austin, but its inventory is slated to grow by a staggering 16% over the next two to three years, which is the third-largest increase in the nation, Whitaker said.
“The market is building more than it can realistically absorb over a short-term period,” Whitaker said.
Dallas has added more than 16,000 units over the past 12 months, and there are about 57,000 more in the pipeline. The sheer volume of new supply could slow rent growth, though strong demand driven by population and job growth is expected to buoy market performance moving forward.
“The fact that new supply is delivering in the market is actually one of the reasons why population and economic growth has been able to persist forward as such,” he said. “You have people moving here because there’s available housing that is still affordable.”
Houston's multifamily sector has been one of the nation’s bumpiest over the last five years, with the ebbs and flows of the energy industry and major storms like Hurricane Harvey wreaking havoc on the local housing market.
Occupancy in Houston tends to be lower than the national average, with RealPage forecasting an average rate of between 91% and 92% over the next three years. There are about 39,000 units in the pipeline, which could put an even greater dent in occupancy.
“Add in the potential of a recession, and Houston’s housing market could be even more affected than many other areas,” Whitaker said. “The good news is Houston is one of those markets that has really solid top-line demand drivers like job growth and population growth.”