In 2021, Multilytics℠, our proprietary suite of machine-learning models, began predicting that many multifamily markets would approach or enter negative year-over-year rent growth territory in the first half of 2023. Other forecasts pointed to a cooling of year-over-year (YOY) increases but an unbroken horizon of single-digit rent growth. Even though ours was not a mainstream view—coming amid the froth of double-digit percentage rent increases, rapid dealmaking and outsized pricing in 2021 and 2022—we began incorporating a higher cost of debt and other variables into our due diligence on markets and deals.
To our knowledge, we were the only provider to foresee negative rent growth in the Class A multifamily market (for details, see our Multilytics Rent Forecast January 2023–January 2024). And we continued to rely on insights from Multilytics, which can forecast rents down to the property level, to inform our local-market dealmakers and conservative risk-management practices.
Multilytics: Positive Rent Growth in 2024
Our new report, Multilytics Rent Forecast January 2024–January 2025, includes year-over-year forecasts for national, regional and gateway markets, and for Origin investment markets in Austin, Dallas, Houston, San Antonio, Orlando, Tampa, Jacksonville, Nashville, Charlotte, Raleigh, Atlanta, Colorado Springs, Denver, Phoenix and Las Vegas.
Multilytics forecasts that by July 2024, six Origin target markets—Denver, Houston, Tampa, Phoenix, Colorado Springs and Nashville—will show positive YOY rent growth. And by January 2025, it predicts that all our target markets will report positive YOY growth, ranging from 1.36% in Austin to 5.88% in Nashville. National (1.72%), regional and gateway markets will show positive YOY rent growth by January 2025 as well, with the Southeast U.S. the lowest at 0.09% and the West the highest, at 2.90%. And assuming 2024 pans out as expected, we see rent growth strengthening in 2025, especially in Origin target markets such as Phoenix, Colorado Springs and Las Vegas.
Why Rent Growth Accuracy Is So Critical
In Austin, where rents had increased by dramatic double-digit percentages over the 2021-22 period, other providers believed it would remain above 6% rent growth throughout 2023—one of the highest among U.S. markets. But it reported -1.84% YOY rent growth in July, below even our prediction of 1.17%. And by July 2023, other data providers such as ApartmentList.com were reporting negative rent growth.
That’s just one example of why accurate rent growth predictions are critical: Dependable information that cuts through market noise leads to better risk management and better decision-making—and, we believe, better returns. If we had relied on industry-standard models in 2022, we could have been compelled to invest heavily in places like Austin at exactly the wrong time. Multilytics helped us better understand future probabilities, not just single-point predictions for a slice of time.
Multilytics’ accuracy has been proven in one of the most unpredictable and volatile environments in recent history. We confirmed this in our mid-year Multilytics Rent Forecast Accuracy Report January–July 2023: Ten of our 15 target markets recorded an average deviation within 2% of our point estimates. In all cases where our forecast deviated, market rents came in lower than our estimates.
The Resiliency of Multifamily
The multifamily sector faces myriad challenges in 2024: continuing high interest rates and slowing but still high inflation, a near-record-breaking number of new units coming online, a possible recession—which we see happening later in the year—and an expected increase in the number of distressed properties. All that has increased the cost of debt, lowered net operating incomes, pulled down valuations and pressured rent growth. To account for this uncertainty, we slightly increased the prediction range for our 2024 outlook, with the bottom end of the range representing the impact of negative shocks.
However, we remain confident in multifamily as an investment for reasons that overtake these shorter-term challenges: Housing is an essential asset, and the U.S. has been undersupplied since the Great Recession, requiring millions of apartment units to correct—even beyond the current delivery of new supply. Shorter term, we believe that increasing distress in 2024 will usher in a generational opportunity to invest in multifamily credit vehicles—an opportunity for which we believe we are well prepared.
Download the Multilytics Rent Forecast January 2024–January 2025.
Note: This is a preliminary report. Market-level information will be updated in January when final 2023 data becomes available, and this may slightly change YOY rent growth forecasts.