Sponsored by: Madera Residential

It’s the end of the year, so let’s get out our red pens and grade our expectations for how 2024 would play out. What did we get wrong? What did we get right?

For a full breakdown: Check out this week’s episode of The Rent Roll podcast on YouTube, Spotify, Apple and Amazon. Here’s the Cliff’s Notes version:

Forecasting Misses!

I missed on deal flow volumes (thought they’d pick up a bit more) and resident turnover (thought we’d see more of that, too).

1. Total transactions will pick up moderately in 2024. ❌

   • What I said: “It will likely be a slog both for operations and to find deals … Still unclear how much volume we'll see, but seems likely more than 2023.”

2. Renter turnover will accelerate due to the 50-year high in supply and rising vacancy, giving renters more options. ❌

   • What I said: I couldn’t dig up an exact quote from the archives. But my thinking was that renters had a ton of attractively priced options due to increased supply and vacancy, so turnover would continue to pick up as it did in 2023.

3. New Class A apartment construction impacted Class C apartments (via filtering) more than anticipated. ❌

   • I actually missed this in 2023 and corrected it going into 2024, but I’ll own it as a miss since it’s kinda cheating to make a correct call after missing it when it first happened.

What happened to cause the miss? I break that down in the podcast.

Forecasting Hits!

Thankfully, I got more right than I got wrong. Some of these were pretty easy picks or widely held consensus views, while a couple (like SFR rents) went against the grain.

1. Distress transactions will be a lot more buzz than reality. ✅

   • What I wrote: “Investors are increasingly resigned to seeing relatively little distress (among institutional-grade assets) hit the market in 2024.”

2. SFR rent growth will NOT re-accelerate despite fewer move-outs to home purchase. ✅

   • What I said: "We need to stop assuming that a soft for-sale housing market equates to a booming ‘best of times’ rental market. When in history was that ever true? Never …Peak rental demand and rent growth have ALWAYS occurred during periods of a robust for-sale home market. That's simply because when homes are selling, we typically see more household formation. So while there are more move-outs to purchase, there's ample demand coming in to backfill those units.”

3. Multifamily values should bottom in 2024. ✅

   • What I said: “Values could be bottoming, and cap rates settling in the mid-5% range” on average. (Note that well-located Class A dropped back into the 4s.)

4. Cap rates will widen between Class A and Class C. ✅

   • What I said: “I suspect well-located, new construction might not get discounted as much as buyers hope, while Class C/B- with value-add needs could be more challenged as cap rate spreads between to A to B to C normalize.”

5. Renewal rent growth will moderate as operators protect occupancy. ✅

   • What I said: “‘Heads on beds’ remains the strategy. Operators continue to give on price to maintain occupancy given the 50-year high in completions hitting in 2024. And diminished loss-to-lease means there’s less upside on renewals.”

6. Leasing demand will remain strong. ✅

   • What I said: “Fundamental demand for apartments is strong and should remain strong. Improved consumer confidence, a resilient job market plus wages outpacing rents all add up to robust demand … Not enough to keep pace with the 50-year high in new supply, but likely enough to keep occupancy levels fairly healthy and enough to avoid large rent cuts in most markets.”

7. Affordability will IMPROVE among market-rate renters signing leases. ✅

   • What I said: “Incomes are outpacing rents again, and likely will through at least 2024. That suggests median rent-to-income ratios (among actual lease signers in our data) could soon drop back below the 23% mark.”

8. Expense growth will outpace revenue growth in 2024. ✅ (yes, that was an easy one.)

   • What I said: “Expense growth will outpace revenue growth in a lot of markets in 2024, but the silver lining is that expense pressures are showing signs of mitigating.”

9. Apartment starts will plunge further. ✅

   • What I said: “New apartment construction starts plunged much more in 2023 than Census data suggests. And there's a mountain of evidence that starts could drop even further in 2024.”

Get the full breakdown of What I Got Wrong (and Right!) about 2024 on this week’s podcast

Check out this week’s episode of The Rent Roll podcast on YouTube, Spotify, Apple and Amazon.  

In this episode, I dive into why I missed on sales transactions and on renter turnover — and what lessons we can learn from each unexpected trend.

I also review the “hits” and recap why I was more optimistic than some others on demand and affordability, among other things.

If you dug up something else I missed (or hit!), feel free to throw it back in my face.

***Now Spinning on the Podcast***

We are 14 episodes deep on the podcast! Find us on YouTube, Spotify, Apple and Amazon. The Rent Roll with Jay Parsons. Recent episodes:

Episode 11: The Institutional Buy Box on Affordable Housing with FCP’s Alecia Hill.

Episode 12: Texas OR SoCal? Dr. Doom Says BOTH with Waterford’s John Drachman

Episode 13: The Convergence of Multifamily & SFR with Pretium’s Fred Tuomi

Episode 14: What I Got Wrong (and Right!) in 2024 with … myself (sorry, but I talked too long to bring on any guests this time.)

Disclaimer: The contents of this newsletter are for informational purposes, not investment advice. No recommendation or advice is being given.

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