U.S. multifamily rents increased slightly in April, though the pace of rent growth continued to decelerate in response to new supply.

Apartment rents averaged a $3 gain up to $1,314 month-to-month across the country, according to Yardi Matrix's monthly survey of 121 markets. On a year-to-year basis, rents rose 2% nationwide, reflecting a 5.5% drop in the average growth rate as rents return to their normal growth levels.

"As we have said for months, the deceleration is expected, given the rapid increase in supply and the inevitable return to growth that is more in line with income gains," Yardi reports. The rent-to-income imbalance has been a big problem in recent years, with most Americans allocating more than 30% of their income to pay for housing.

Landlords in key markets are being forced to lower rents and offer concessions to remain competitive and attract residents. That is not to say the demand has softened.

While Millennials are aging (they now fall between the ages of 20 and 35) and will incrementally shift demand from renting to homeownership as they begin to start families, a large portion of the group (2 million) has just barely hit the prime renting age. That is nothing compared to the whopping 70 million expected to peak in 2024 — which means multifamily can expect solid demand from Millennials for at least seven years.

Massive Incoming Supply

Yardi Matrix expects more than 363,000 new apartment units will come online in 2017, the largest wave of new supply to hit this cycle — though Yardi department of operations manager Doug Ressler said landlords likely will not feel the impact of the dramatic inventory influx until much later in the year.

Most of this year's new supply falls within the high end of the spectrum and is in a handful of markets, including Nashville, Seattle, Miami, Denver, San Antonio, Dallas, Austin and Portland. Apartment owners in major markets like New York City and San Francisco are already feeling the impact of excess supply. Forced to compete for luxury renters who have an abundance of options, landlords are lowering rents and offering concessions to appeal to renters.

"We expect that rent gains will be rocky over the next 12 to 24 months as the market digests the wave of new supply coming online," Yardi reports. "Apartment owners should moderate expectations during that time, even though we expect fundamentals to remain strong and the long-term demographic picture looks positive."