Transcription
The biggest apartment downturn in US history is happening right now, and it's causing a local housing market crash across many cities in America. These rents for apartments are falling and falling like a rock, and the result is cheaper prices for local renters and buyers, but also landlords going into default.
According to Fannie Mae and Freddie Mac, the default rate on multi-family mortgages has now hit its highest level since 2009-2010. Quite literally, this is a crash playing out in the US apartment market, and this is also spilling over into the residential housing market in these cities as well.
When you look at the skyline here, you can see the problem, everyone. All of these new apartment buildings either under construction or recently built that are sitting heavily vacant. Particularly this apartment right behind me. This building is giving three months free rent with a minimum 12-month lease, everyone. Three months free rent is a 25% rent discount. And what these landlords do to try to kind of hide the downturn is they don't cut the rent outright in a lot of cases. Instead, they give these massive concessions, and that's what that three months free is.
Apartment concessions are now at their highest level since 2010. This is a tall one. They're also giving three months free rent here. This building is at least two, probably three years old, still giving three months free despite it being three years old.
Now, I originally worked in the apartment space back in the day when I cut my teeth in real estate. I worked with several different companies that engaged in providing loans and also developing apartment buildings. And if you had told one of these developers when they built these buildings that three years later or five years later, the apartment would still be giving away free rent, they would say, "No way, not possible." But that's what we're seeing.
And why this is actually good news for the housing market overall is because it's to also lead to cheaper home prices. The more that apartment rents go down and the cheaper apartment rents get, the more it creates general deflation in the US housing market.
You can see, according to data from Apartment List, that the number one market with the biggest rent cut is Austin, Texas. Rents in Austin are down 21% from the middle of 2022 for apartments. Rents in Austin are back to where they were before the pandemic. Other markets with huge apartment rent cuts include Fort Myers, Colorado Springs, Northport, Sarasota, Florida, Phoenix, Arizona, San Antonio, Texas, Lakeland, Florida, Raleigh, North Carolina, Denver, Colorado, Orlando, Florida, and Atlanta, Georgia. In all these markets, rents are down double digits on asking rent. You can see also markets like Nashville, Charlotte, and Dallas are down close to 10% on rent. And that doesn't even include the value of the 2-3 months free. So, when you include that in the equation, a lot of these apartment markets in the Sunbelt and Mountain West are back to pre-pandemic rents. These rental rates in these markets are falling fast, and it's also causing home prices to fall.
Now, let's compare that to the map here on Reventure app of where home values are down the most the last 4 years. These areas in blue, you can see it's largely aligned with the areas where rents are down the most. In Austin, rents are down 21%, home values are down 26%, and Cape Coral, Fort Myers, rents are down 18%, home values are down close to 18%. And by and large, almost every market with declining apartment rents has declining home values, and vice versa.
What a lot of people are missing in this story is that they think it's just supply related. They think that these Sunbelt markets overbuilt, which is true, but it's more about than just overbuilding. It's also related to a lack of demand. The number of people moving to Sunbelt cities like Nashville, where I'm standing right now, has plummeted over the last couple years. And you can actually see overall migration levels into the South in the US in percentage terms are at their lowest level in 35 years, back in 2025. And they've gone down by about 2/3 from where it was in 2022.
But I fear that maybe the rents haven't come down enough in these markets to cause the situation to stop. For instance, here's another apartment building here in Nashville. This building, folks, is giving 15 free weeks, everyone. That is almost 4 months free rent. That's around a 31% rent discount on a 12-month lease. It means that the one-bedroom apartment that's $2350. If you were to apply 15 free weeks to that, that's knocking it down to around $1600 a month.
Now, some of you might say, "Hey, even at $1600 a month, maybe these rents are still expensive." And that's ultimately in the eye of the beholder. Some people want to live in these new high-rises in downtown areas. Some people don't. But the fact of the matter is declining rents is a major problem for landlords, apartment developers, [and] local housing market.
When the rents are dropping, it means that there's really no incentive for a first-time buyer to buy a house. Here in Nashville, you can just hop around to different buildings each year and get a 3-month, 3-months free. Often, even you can renew your lease in Nashville and get 1 to 2 months free on your renewal. When this is happening, why would anyone buy a house? Right? Like if you're a first-time buyer and prices are overvalued, why would you buy a house and double your payment? You wouldn't, which is why Nashville's housing market is also suffering.
Nashville's housing market now has over 11,000 homes for sale as of June 2026. This is no longer apartments. We're talking about houses now, houses, condos, and townhomes. Nashville has over 11,000 for sale. We've never seen inventory that high going back the last decade.
But here's the thing I think everyone is missing about this apartment market crash in America's Sunbelt and Mountain West. Is it this isn't just about the apartment market? It's signaling a structural change in where Americans are moving, in which cities are going to have the most economic growth and might going forward. This is the really interesting thing that I don't really feel like anyone in the housing market, other than myself on this channel, has caught on to is the fact that we are now in a long-term correction in the number of people who are moving south, who are moving west. For decades, that was the general direction of travel for people in the US. They would move to Tennessee, Florida, Texas, Arizona, or Colorado. But I think we're seeing an opposite movement trend now take hold involving people moving back to the Midwest, back to the Northeast.
As you can see, when we look at the markets where rents have gone up the most in the last 4 years, according to Apartment List, it's a very different looking set of cities. The cities where rents are growing are not the boom towns. In fact, the cities where rents are growing the most are the ones supposedly that people are leaving. Look at this. Number one in America for apartment rent growth the last 4 years is Chicago, 13.6% rent growth from August 2022 to June 2026. Number two, Hartford, Connecticut. [snorts] Number three, Madison, Wisconsin. Number four, Buffalo, New York. The top four markets for where landlords are pushing rent the most are towns that you would never have guessed if you just paid attention to mainstream headlines. Looking further down this list, you could see Milwaukee has high rent growth. Omaha, Nebraska. Wichita, Kansas. Kansas City, Missouri. Rochester, New York. Providence, Rhode Island.
What we're seeing right now, everyone, is a reorientation in where Americans are moving. And if I'm right, and if this continues for the next several years, it's going to dramatically reshape the US housing market. We could potentially see this downturn in Nashville, the downturn in Austin, the downturn in Florida, the downturn in other areas in the South, it just might be getting going. And it might be something that could last 3 years, 4 years, 5 years, or maybe even 10 years, because they just built so much in these areas, banking on all the people continuing to move in.
The other thing that's now building is the distress. The distress on the rental market. I talked in the beginning about how Fannie Mae and Freddie Mac are reporting a huge surge in delinquencies for multifamily. You could see it here in this graph from Calculated Risk Substack. It's actually a really good Substack covering the housing market. You could see here that the 60-day plus delinquency rate for Fannie and Freddie multifamily mortgages on big apartment buildings is up to around half a percent to 0.8%, which is the highest it has been since the 2008, 2009, 2010 GFC recession. Meaning, there are actually quite a few apartment owners and developers and landlords going into default right now.
So, what's happening is many of these landlords who took out cheap debt in the pandemic, maybe a construction loan during the pandemic, 2% or 3% mortgage rate, they're now refinancing into a 6% mortgage rate, which is causing a huge increase in debt burden, and is causing, uh, in combination with lower rents, many of these properties to not underwrite. The demand is not strong enough in a town like Nashville. The demand is not strong enough in a town like Austin or Dallas or Phoenix or uh, Denver or Tampa or Orlando. There just aren't enough people with the paychecks to support the rent levels. And so, you're seeing this apocalypse of sorts for apartments in these Sunbelt towns.
And when I look at the migration data, I'm seeing confirmation of this. I talked about before the migration into the Southern US, how it's down by 2/3 from 3 years ago. Now, take a look at the migration into the Midwest, the orange line. You could see migration into the Midwest had its first positive in 35 years in 2025. So from 1991 to 2024, the Midwest lost Americans every year. More people left the Midwest than moved in. But in 2025, we had our first year in the Midwest of positive inbound migration in almost four decades. And you could see, wow, this was the closest gap between the South and the Midwest in history in 2025. I suspect the numbers in 2026 will look similar.
I have to ask, why is this happening? Why are we going from the Sun Belt achieving all of this influx of migration to now achieving much less migration, still positive to be clear, still positive migration numbers into the Sun Belt, into Nashville, but just not what it was. And why is the Midwest now in positive territory? Well, I think there's two key trends. Number one is affordability. These Sun Belt markets lost their affordability advantage during the pandemic. They used to be really affordable. They used to be no-brainer towns to move to financially. That's no longer the case. Rents in certain areas of Texas and Tennessee and Arizona went way up during the pandemic. And so these cities just no longer became as attractive from an affordability standpoint.
But I think the other trend that we're seeing is economic. I think we're seeing a rejuvenation in the economies of the Midwest and Northeast Rust Belt. Particularly with the onshoring of manufacturing jobs that we're now starting to see in the US. There's more manufacturing facility construction. There's of course data center construction. I was just looking at a news article. Micron, the big chip fab company, they're now building one of their biggest plants in the US, 30 minutes north of Syracuse, New York. Upstate New York getting one of the biggest chip factories. Could there also be just an economic reorientation happening where the Midwest and the Northeast is going to kind of have a moment the next 10 years of returning to prominence? For a long time, it was the Northeast and Midwest that was the dominant economic powerhouse in the US and it kind of lost that advantage the last 30 to 40 years to the south. Could we be entering a period where the Northeasten Midwest regains that advantage due to more relative affordability, due to better economic growth and due to the fact that maybe a lot of the people who left cities like Chicago and Syracuse and Cleveland and Upstate New York, maybe they're moving back. Maybe they want to be closer to family. Maybe they, you know, tried the thing of moving to all the Sun Belt towns during the pandemic and now they're moving back to where they're born. I think potentially all three of those are converging at once to create a scenario where we're going to see the Midwest and Northeast perform much better from an economic and real estate standpoint over the next 10 years than the south and the Mountain West.
Could be entering a protracted, prolonged housing market slump, maybe even an economic slump, which would be good news I think for a lot of these areas in the south. They became too expensive. Locals can't really afford to buy homes here. Many locals still can't afford to rent even though those rents are dropping.
And in terms of those rents dropping, I just actually want to key you guys in on one really interesting thing because I know some people might be watching this and might be saying, "Well, well, my rent isn't dropping. The landlord tried to increase my rent." One thing it's important to pay attention to is that even in a down rental market, landlords will still try to increase your rent. Just because they're given 3 months free on the new property, just because rents are down maybe 10% in 3 years, doesn't mean the landlord is not going to try to increase your rent. They're still going to try to do it. And when you look at the publicly traded REITs for a single-family homes and apartments, they show a very clear trend. Something called new lease rent growth is heavily negative in most markets, meaning that when there's a new lease coming in for an old lease, someone moves out and then a new person moves in, the new person has cheaper rent than the previous person who was there. However, very consistently these landlords still report increasing rents on renewals in the same city. So, what that means is if you are renting right now in one of these markets where rents are dropping and your landlord tries to increase your rent, it's incumbent upon you to do some research and push back on the landlord and say, "Hey, here are the comps in the area. Here are the other units you're renting in in the building right now. I don't accept a rent increase." Or, you know, say, "I'm willing to stay if you give me this at this rent and maybe give me a month free." That's what you still got to do to get the best deal on renewal.
Now, the upshot of all of this for you guys is if you live in one of these cities, I think this is actually a great sign. It's a sign that we're going to continue to see more affordability. As the more that apartment vacancy rate goes up, the more that the apartment rents drop, the more that the migration levels drop into the South and West, the more you're just going to see lower rent, lower prices, more inventory, and I think a lot of these sellers in these markets who are still overpricing their homes better wake up and pay attention because nothing is coming to save you. Fed rate cuts aren't coming to save you. Another migration wave isn't coming to save you. The reality is these markets are too overpriced, they're too overvalued, and the prices are going to have to drop down to meet the income levels, and the rental market's just a great snapshot of that in terms of just showing what real demand is.
Cuz the rental market shows real demand. For instance, take this comparison of the vacancy rate for apartments between Austin and San Francisco. What do you see on this graph, everyone? What can you learn about these cities right now? And which one actually has housing demand? You can see in Austin the vacancy rate is over 9%, close to the highest level in the last 10 years. Yet, in San Francisco, the vacancy rate has dropped to the lowest level in 10 years. Obviously, this is telling you there is a boom going on in San Francisco. There's a lot of rental demand. There aren't enough apartments to fill it. It's the opposite going on in Austin. Sure enough, in San Francisco, home values are up 7% in the last year. In Austin, they're still down 5% in the last year.
Really, you can use these rental market tools to help you better understand the reality of your market and the fundamentals of your market. We just added some metrics on Reventure App under investor metrics, home price to rent ratio, also overvaluation based on rental rates, based on prices to rental rates. So, download that data for yourself. Get our mobile app at www.reventure.app or download it in the App Store under iOS and Android. Sign up for only $39 a month to access this data. Everyone, this is the best deal you're ever going to find for housing market data and insight. Until next time, everyone, this is Nick from Reventure signing off.