Founder’s Note
For the first time in more than a year, apartment rents are rising again. RealPage’s third-quarter figures, out last week, put the average rent at $1,915, up 0.9% from a year ago, with renters taking almost as many apartments as builders finished. After two years of record construction and falling rents, the national picture has turned.
The trouble is that nobody invests in the national picture. Inside that 0.9% sit San Francisco, up 14.3%, and San Antonio, down 3.7%. The Midwest is the strongest region. The South is the only one where rents are still falling. A range that wide tells you which way the country is heading and almost nothing about the one or two properties an investor ends up owning.
My read: the numbers that matter are local, and a sponsor should be able to hand them to you. How many apartments are going up near the property. What a new lease signs for against what the last tenant paid. What the building costs against what similar ones sold for.
This Week in Markets
1. Apartment demand has nearly caught up with supply
Renters filled about 304,800 apartments in the year through September while builders completed about 318,000, according to RealPage. That 13,000-unit gap is the smallest since late 2015, and completions are running about 46% below their late-2024 peak. Occupancy held at 95.4%.
Why it matters: Rents fell because too many buildings opened at once, and that wave is ending. Fewer new apartments chasing the same renter is what lets an existing owner raise rent again, though more than one in five apartments is still offering a discount to fill.
2. The ten-year Treasury set another high, then eased
The ten-year yield reached nearly 5.37% on Wednesday, its highest level in 24 years, before ending the week below 5.25%. Minutes from the Federal Reserve’s September meeting showed the rate increase was unanimous, though most officials described it as risk management. Traders put the odds of another increase this month below 20%.
Why it matters: Many apartment buildings still sell at yields only slightly above what a Treasury pays. With a margin that thin, the return has to come from growing the income, which makes the rent assumptions the most important page in any offering.
3. The rent map is splitting by region
The Midwest led every region with rents up about 2%, RealPage reports, while the South was the only region with falling rents and occupancy under 95%. Denver, Charlotte, Tampa and Houston each fell 2% to 3%. Apartment List’s October report shows the same pattern, with Bay Area and Midwest metros at the top.
Why it matters: Eighteen points separate San Francisco, up 14.3%, from San Antonio, down 3.7%. Which metro a property sits in, and which part of that metro, now matters more than whether apartments as a whole are recovering.
The Take
Every headline about apartments this month will say the same thing: rents are rising again. It is true, and it is the least useful sentence an investor will read. You cannot buy the national apartment market. You buy a share of one building, or two, on a particular road, competing with whatever is being built within a few miles of it. Last week’s data measured the distance between those two things: 18 points between the best large market and the worst.
This cuts both ways. A recovering country does not rescue a building in a city that is still overbuilt, and a weak region does not condemn a building whose own neighborhood has almost nothing under construction. The regional figure is where the question starts. Three local ones are where it gets answered, and a sponsor who knows the property can give you all three.
One. Ask what is being built nearby. Rents fall where new apartments open faster than renters arrive. Ask how many units are under construction in the metro, as a share of what already exists, and whether they are aimed at the same renter. A new luxury tower downtown does not compete with a forty-year-old garden community in the suburbs.
Two. Ask what new leases are signing for. Every plan assumes rents rise. The evidence is the trade-out: what the last tenant paid against what the next one agreed to. A building where new leases are already signing higher is showing you its rent growth. One where they are flat is asking you to believe in it.
Three. Ask what it costs per apartment. Divide the purchase price by the number of units and compare it with what similar buildings nearby recently sold for. Buying below those sales leaves room for the plan to fall short. Buying above them means the plan has to work.
The three questions travel to any deal, though. The apartment market turned a corner this quarter, and that fact will be used to sell a great many buildings that have not turned anything. The recovery is real in some zip codes and still a forecast in others. Ask for the pipeline, the trade-outs and the price per unit, then hold them up against the story you are being told. Target returns remain targets, and past performance does not predict future results. The average is a headline. The address is the investment.