In the wake of the once red-hot rental market of previous years cooling down, the Apartment List economists have predicted 7 trends for 2024.
A key topline summary for 2024 is as follows:
- In 2024, new apartment construction will reach its highest level in decades, giving renters more options and better negotiating power.
- The growth rate of year-over-year rents is expected to crawl out of negative territory next year, but won’t rise above single digits.
- There will continue to be more long-term renters even though mortgage rates are predicted to ease modestly.
Predictions for 2024
By 2024, there will be more apartments than ever before in the rental market
According to Census Bureau data, multifamily supply growth should continue through 2024. For the first time ever, there were one million multifamily apartment units under construction in 2023, and completions are expected to peak in 2024. As a result of so many units in the pipeline, new multifamily supply should be at its highest level since the 1980s in 2024.
Low single-digit rent growth in 2024
According to estimates (going back to 2017), rent growth in 2023 will be the second slowest after only 2020. As for 2024, we anticipate a slight rebound in demand but a continuation of a soft market. New household formation is likely to be slowed by some pent-up demand in the labor market. Despite that, affordability remains a major concern for Americans, and sentiment data indicates that they lack confidence in the economy. Our vacancy index is likely to rise modestly from its current level in 2024 even in the most bullish scenario where demand will outstrip new supply. It is expected that rent growth will emerge from negative territory early next year, but it won’t exceed single digits by 2024.
Renters will become longer-term renters as the rent vs. buy math changes
Renters are staying in their homes longer than they used to. Renting makes more financial sense now even for those who can afford to buy in today’s market. It is likely that more Americans will continue to rent their homes later in life, even though many still aspire to own homes. Despite modest reductions in mortgage rates expected next year, the for-sale market’s dynamics should not be significantly altered by the shift. Many people will view renting as a more practical housing option as their path to homeownership fades.
Hybrid work will cement itself as the new norm for office jobs
Remote work narratives in 2023 focused on returning to the office, but this focus obscures the fact that the pendulum will never swing back to its pre-pandemic position. Approximately 28 percent of all work days still take place from home, and that figure seems to be stable. About 42 percent of American workers are currently working remotely, and hybrid arrangements are more common than fully remote arrangements. In today’s flexible workforce, accommodations that combine work and home life are in high demand, according to data.
Sun Belt markets will see more renters, but not necessarily higher rents
Sun Belt states have seen the nation’s fastest population growth in recent years. However, in many cases, Sun Belt markets have also been accommodating of growth, allowing for new housing development. Multifamily development should keep rent growth in check in fast-growing Sun Belt markets.
With the economy at the forefront of the presidential election, candidates will need to address housing issues in the rental market
Our economy has proven to be surprisingly complex as we head into an election year. In most economic indicators, the economy is doing quite well, but economic sentiment surveys indicate that confidence and satisfaction remain low. It’s likely that waning housing affordability is at least partially responsible for this disconnect. During the current election cycle, candidates on both sides of the aisle will have to communicate their housing plans and address one of the country’s most pressing concerns. It is possible that housing will rise to the forefront of the political discourse in 2024.
AI will be used more by renters
Specifically for renters, we expect AI-powered tools to be available by 2024. The use of artificial intelligence in apartment searches will soon become commonplace for renters to search, compare, and coordinate actions. While these advancements will take time to change macro market dynamics, renters may have a more powerful hand in the next high-demand rental cycle. Both renters and property managers will be able to benefit from AI-enabled rental search tools as adoption accelerates into 2024.
Conclusion
As with every new year, 2024 will bring twists and turns no model can predict. Our goal is to help you prepare for what lies ahead by alerting you to what’s foreseeable — ranging from new supply waves to persistent homeownership headwinds boosting rental demand. If you would like to discuss your rental property, please schedule a call with us here.