Whiplashed tenants who’ve seen rents soar by double digits may get some relief in the next two years in the form of smaller rent hikes.
But what lies ahead is anyone’s guess as economic uncertainties cloud the outlook, a top University of Southern California forecaster says.
Inflation, rising interest rates and changing migration patterns make it hard to predict the future, USC’s Casden Multifamily Forecast the Casden report said.
The report, released Thursday, Nov. 10, predicts smaller rent hikes and higher vacancy rates through the summer of 2024. That’s good news for tenants who saw lease rates for vacant apartments rise by as much as 18% over the past year and a half.
According to the forecast, apartment rents will rise just 2.4% annually over the next two years in Los Angeles County, 3-4% a year in Orange County and 5-7% in the Inland Empire.
“Seventeen percent rent growth is not going to happen year after year after year. It’s not possible,” said Richard Green, director of the USC Lusk Center for Real Estate.
“The reason we’re forecasting the slowdown is we’ve had some serious out-migration, particularly from LA County,” he said. “That’s relieved some of the pressure. Vacancies are rising a little bit, but not by enough that you’re going see a decline in rent.”
Specifically, the forecast said:
Los Angeles County rent for newly vacant units will rise 2.4% annually to an average of $2,289 a month by summer 2024. That’s down from an 8% growth pace at the start of the year, according to CoStar, which tracks apartment trends. Vacancy rates will rise to 4.57% in 2024, up from 3.6% this year.
Orange County rents will increase 3.1% next summer, rising another 3.9% in 2024 to $2,781 a month. That’s compared with 17% rent hikes at the start of the year. Orange County vacancies likewise will rise slightly, hitting 4.36% in late 2024. That’s up from 3.03% this past summer.
Inland Empire rents — which had increased 13.3% at the start of 2022 — will rise 7.7% by next summer and then will climb an additional 7.1% to $2,230 a month the following year. Riverside and San Bernardino counties, on the other hand, will see fewer vacanciesas remote work draws more people to the area seeking cheaper rentals and more space. USC predicted inland vacancy rates will drop to 3.73% in 2024, down from this past summer’s 4.26% rate.
Cloudy picture
Nevertheless, economists say economic uncertainty is clouding their ability to predict what will happen to the rental market.
“You would expect to see that out-migration ultimately leads to higher vacancy. And so, it’s really is a migration story,” Green said. “That’s why we take pains to say in the report that if migration changes, then all of this changes.”
Another thing that could upend the USC forecast is “a serious recession,” sparked by the Federal Reserve raising interest rates at a pace not seen since the Reagan administration.
If “we see a lot of layoffs, then of course, all of this changes,” Green said. “People will move back in with their parents or they’ll double up, and then that could lead to more vacancies, and that could lead to weaker rents. … That, to me, is the big unknown out there.”
The USC forecast mirrors nationwide outlooks.
“We are starting to see a deceleration in rent growth,” Caitlin Walter, vice president of research at the National Multifamily Housing Council, said last month at a conference in Atlanta. “So, (rent growth) is still at a high number, but it is starting to decelerate.”
Walter estimated there’s a nationwide shortage of 2.4 million to 4.8 million apartments. Even though more than 700,000 apartments were under construction last year, supply chain problems are delaying construction, Walter said.
“If all of your units don’t have a refrigerator, you can’t get that certificate of occupancy,” she said. “So this is all impacting our ability to actually deliver units to the market.”
Meanwhile, tenants nationwide report they’re feeling financial strain from a combination of inflation and rising rents, according to Realtor.com’s latest renter and landlord survey.
The typical U.S. renter is paying $160 per month more when renewing a lease and $300 per month more when signing a new lease, the July survey showed. Three-fourths of tenant households say they’re saving less each month than they were a year ago, and 59% of tenants say they’re delaying their dream of buying a home.
Despite higher rents, U.S. landlords — and in particular mom-and-pop landlords — are feeling pinched by the rising costs of ownership, the survey showed. Three-fourths of landlords said they experienced increased taxes and maintenance costs over the past year.
High Desert to see biggest hikes
Despite economic uncertainties, USC ventured to make forecasts in 31 Southern California submarkets, including 21 in Los Angeles, Orange, Riverside and San Bernardino counties.
In the four-county region, rents are forecast to rise fastest in the High Desert. That includes the “outlying” San Bernardino County, a sprawling area stretching north from the San Bernardino city limits to Victorville and west to Twentynine Palms. The average rent for a vacant apartment there is projected to rise 17% to $1,543 a month by the summer of 2024.
Gains of 12% are forecast in the Palmdale-Lancaster-Santa Clarita region, western Riverside County and the cities of Anaheim and Santa Ana.
At the opposite end of the spectrum, tiny hikes are forecast for a large swath of Los Angeles and neighboring cities.
Inglewood’s rent will rise just 1% over the next two years, with 2% increases projected in downtown L.A., Koreatown and the Mid City area. Growth of just 3% is expected for a section stretching from Hollywood past the Hollywood sign and Mulholland Drive into Studio City.
In Long Beach and the South Bay, the average rent is projected to rise $100 to $1,940 a month by 2024, a 5% increase. San Gabriel Valley rents will rise 10%, averaging $2,580 a month in Pasadena and $2,081 a month in San Gabriel Valley cities to the east.
Beverly Hills and L.A. County coastal cities will retain their position as the region’s highest-rent districts. Rents there are forecast to average $3,258 a month in 2024, up 5% from $3,105 this past summer.
While Inland Empire rents are the region’s most affordable, USC notes that they’re rising fast since job growth is outpacing apartment construction.
For example, the share of rent-burdened Inland Empire households — or those paying more than 30% of their income on rent — was 55% as of 2020, 1 percentage point above the Orange County share and 1 point below the L.A. County share.
“The high number of people who must pay more than 30% of their income in rent may lead the Inland Empire to become like Los Angeles and Orange counties,” the USC report said. “The only remedy for this would be a substantial increase in new construction.”
County-by-County rent forecasts for third-quarter 2024
Los Angeles County: $2,289, up 4.7%
Orange County: $2,781, up 7.1%
Inland Empire: $ 2,230, up 12.7%
Sub-market forecasts for 2024
Outlying San Bernardino: $1,543, up 17.0%
West Riverside County: $2,313, up 12.3%
Palmdale-Lancaster-Santa Clarita: $2,345, up 12.2%
Anaheim – Santa Ana: $2,516, up 12.2%
Redlands- Fontana: $1,881, up 11.3%
Pasadena: $2,580, up 9.6%
San Gabriel: $2,081, up 9.6%
North Orange County, $2,467, up 9.4%
South & Southeast Los Angeles: $1,913, 8.9%
Palm Springs-Indio: $1,362, up 7.8%
Irvine-Tustin-Mission Viejo: $3,069, up 7.7%
San Fernando Valley: $2,149, up 6.6%
Coastal Orange County Communities: $3,032, up 6.1%
Long Beach-South Bay: $1,940, up 5.5%
Coastal L.A. County Communities-Beverly Hills: $3,258, up 4.9%
Burbank-Glendale: $2,074, up 4.1%
Hollywood-Studio City: $2,288, up 2.7%
Koreatown-Mid City: $2,295, up 2.3%
Chino-Rancho Cucamonga: $2,403, up 2.3%
Downtown L.A.: $2,162, up 1.6%
Inglewood: $1,669, up 1.3%