Tenants struggling with double-digit rent increases may see rent increases eased over the next two years.
But with economic uncertainty clouding the outlook, what lies ahead is anyone’s guess, says a top forecaster at the University of Southern California.
According to USC’s Casden Multifamily Forecast, inflation, rising interest rates and changing migration patterns are making the future difficult to predict.
The report, released on Thursday, November 10, forecasts rent growth to slow and vacancy rates to rise through the summer of 2024. That’s good news for a tenant whose vacant home rents have risen by as much as 18% in the past year and a half. .
Projections show that apartment rents will only rise 2.4% per year over the next two years in Los Angeles County, 3-4% per year in Orange County, and 5-7% per year in the Inland Empire.
“17% rent growth doesn’t happen year after year. It’s impossible,” said Richard Green, director of the USC Lusk Center for Real Estate.
“The reason we’re predicting a slowdown is because we’ve had some serious migration, especially from LA County,” he said. It’s not enough to lower the rent.”
Specifically, the forecast states:
Los Angeles County That’s down from an 8% growth pace at the beginning of the year, according to CoStar, which tracks apartment trends. The vacancy rate will rise from 3.6% this year to 4.57% in 2024.
orange county Rents will rise 3.1% next summer and will rise another 3.9% to $2,781 per month in 2024. This compares to a 17% rent increase at the beginning of the year. Orange County’s vacancy rate will likewise rise slightly, reaching 4.36% in the second half of 2024. That’s up from his 3.03% this summer.
Inland Empire Rent, which rose 13.3% at the beginning of 2022, will rise 7.7% by next summer, and another 7.1% the following year to $2,230 a month. Meanwhile, in Riverside and San Bernardino counties, Working from home has reduced vacancies, drawing more people to the area for cheaper rent and more space. USC predicts that the inland vacancy rate will drop to 3.73% in 2024, down from 4.26% this summer.
Nevertheless, economists say economic uncertainty is clouding their ability to predict what will happen to the rental market.
“You would expect outmigration to ultimately lead to higher vacancy rates, so this is really a migration story,” said Green. “That’s why we struggle to say in our reports that changing the transition changes everything.”
Another thing that could upset USC’s predictions is a “deep recession” caused by the Federal Reserve raising interest rates at a pace not seen since the Reagan administration.
“If we see a lot of job cuts, of course all of this will change,” Green said. “People could move back in with their parents or double, vacancies could rise and rents could drop. …That, to me, is the big unknown out there.
USC’s projections reflect a national outlook.
“Rent growth is starting to slow,” said Kaitlyn Walter, vice president of research at the National Multifamily Council, at a conference in Atlanta last month. “So[rent growth]is still high, but it’s starting to slow down.”
Walter estimates there is a shortage of 2.4 million to 4.8 million apartments nationwide. Last year he had more than 700,000 apartments under construction, but problems with his supply chain have delayed construction, Walter said.
“If every unit doesn’t have a refrigerator, you can’t get a residency certificate,” she said. “So all of this is impacting our ability to actually bring units to market.”
Meanwhile, according to Realtor.com’s latest survey of renters and landlords, tenants across the country are reporting feeling financially strained from a combination of inflation and rising rents.
A July survey found that the typical U.S. renter pays $160 a month more when renewing a lease and $300 more a month when signing a new lease. Saying they are saving less each month than they were a year ago, 59% of tenants say they are delaying their dreams of buying a home.
Despite rising rents, a survey showed that landlords in the United States, especially family-owned businesses, feel they’re being weighed down by rising costs of ownership. His three-quarters of landlords say taxes and maintenance costs have increased in the past year.
High Desert to see the greatest hikes
Despite economic uncertainty, USC chose to make forecasts in 31 Southern California submarkets, including 21 counties in Los Angeles, Orange, Riverside and San Bernardino counties.
In the four-county area, rents are projected to rise fastest in the High Desert. This includes “frontier” San Bernardino County, a vast area that stretches from the San Bernardino city limits north to Victorville and west to Twentynine Palms. The average rent for a vacant apartment is projected to rise 17% per month to $1,543 by the summer of 2024.
The Palmdale-Lancaster-Santa Clarita area, Western Riverside County, and the cities of Anaheim and Santa Ana are projected to increase by 12%.
On the other end of the spectrum, small hikes are predicted in most of Los Angeles and neighboring cities.
Inglewood’s rents are projected to rise by just 1% over the next two years, with a 2% increase in LA’s Downtown, Koreatown and Mid-City areas. The segment from Hollywood past the Hollywood sign past Mulholland Drive to Studio City is expected to grow by just 3%.
Long Beach and South Bay are projected to see average rents rise from $100 to $1,940 per month by 2024, up 5%. San Gabriel Valley rents are up 10%, averaging $2,580 a month in Pasadena and $2,081 a month in cities in the eastern San Gabriel Valley.
Beverly Hills and the coastal cities of LA County maintain their status as the highest-rent neighborhoods in the region. It is projected to average $3,258 per month in 2024, up 5% from $3,105 this summer.
Rent in the Inland Empire is among the most affordable in the area, but USC notes it’s rising quickly as job growth outpaces apartment construction.
For example, the share of Inland Empire households with rent (or households paying 30% or more of their income in rent) will be 55% in 2020, 1 percentage point above Orange County’s share and LA County’s share. 1 point less.
“With so many people having to pay 30% or more of their income in rent, the Inland Empire could become like Los Angeles County or Orange County,” said the USC report. “The only remedy for this is a massive increase in new construction.”
Rent Forecasts by County for Q3 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 forecast for 2024
- Suburban 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 and 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 Community: $3,032, up 6.1%
- Long Beach – South Bay: $1,940, up 5.5%
- Coastal LA 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-Midcity: $2,295, up 2.3%
- Chino Rancho Cucamonga: $2,403, up 2.3%
- Downtown Los Angeles: $2,162, up 1.6%
- Inglewood: $1,669, up 1.3%