Will local home buyers, renters catch a break in 2024? Here are some trending signs
The outlook for both rents and mortgages going into 2024 offers glimmers of hope for renters and home buyers.
Average rent rates in Tacoma are down more than 3 percent over November 2023, according to Apartment List’s latest update released this month. The average U.S. 30-year fixed mortgage rate as of Thursday was at 6.67 percent, while average 15-year fixed rate was at 5.95 percent, according to Freddie Mac’s primary mortgage market survey.
While the country probably won’t go back to rates of 3 percent or lower for next year, the National Association of Realtors on Dec. 12 predicted that the 30-year mortgage and fed funds rate had “likely peaked.”
“Rents will calm down further, which holds down CPI and will make the Fed cut rates 4 times,” NAR’s presentation predicted.
The Consumer Price Index (CPI) measures change over time in the prices paid by consumers for a representative basket of goods and services.
Pace of rent growth slows
According to the Apartment Rent report, Tacoma’s median rent was at $1,450, down 0.7 percent from the previous month, with the city’s year-over year rent decline outpacing both the state (-1.4%) and national averages (-1.1%).
“Eleven months into the year, rents in Tacoma have fallen 1.4%. This is a slower rate of growth compared to what the city was experiencing at this point last year. From January to November 2022 rents had increased 0.8%,” the report stated.
Expanding the range comparing Tacoma to the Seattle market, the report noted Tacoma’s median rent is 16.8 percent lower, with Seattle metro’s median rent at $1,742.
It added, “The median rent in Tacoma is 8.2% higher than the national, and is similar to the prices you would find in Atlanta ($1,450) and Mesa, AZ ($1,443).”
Among Apartment List’s predictions for 2024, it noted nationally, “The blistering rental (cost) surge has cooled for now thanks to easing demand and rising supply.” That also holds true for the Tacoma area as a number of projects started just before or during the pandemic reach or near completion, such as Alta University Place, 2211 68th Ave. Ct. W., and Analog Tacoma, 411 S. 15th Street, among others.
More are on the way. The report noted that nationwide, “The number of new multifamily apartment units under construction hit one million for the first time ever in 2023, and completions are expected to peak in 2024. With so many units in the construction pipeline, 2024 should be the strongest year for new multifamily supply since the 1980s.”
A national apartment development slowdown that kicked in more than a year ago in response to market pressures including higher interest rates won’t be reflected in project completions until 2025, the report added, given the length of typical construction cycles.
Local tax incentive performance
Tacoma City Council’s Government Performance and Finance Committee received a presentation Dec. 19 on how the MultiFamily Property Tax Exemption worked in 2023 as a development incentive for new apartments, compared with 2021-2022.
The incentive exempts projects from property taxes on the assessed improvement value over the assigned years. In Tacoma, the 12-year exemption calls for 20% of the units to be rent-restricted at 70% Pierce County Area Median Income (AMI) for 12 years, with rent capped at 30% of income levels, adjusted annually.
The 8-year version does not include any rent-restricted units.
Debbie Bingham, project manager with the city’s Economic Development Services, told the committee that 20 total apartment projects representing 798 new units were approved by council in 2023. Of those, 14 took the 12-year version, generating 75 rent-restricted units at 70 percent AMI.
Bingham noted that 2022 turned out to be one of the biggest for development, with 29 projects approved representing 2,745 units and 17 of those taking a 12-year exemption, with 2023 also notable for its own pace.
“Honestly, 2023 was pretty busy, considering everybody said, ‘Oh, there’s a recession coming,’” Bingham told the council committee. “We did still approve a lot of projects.”
In 2023, 19 projects started renting in Tacoma, bringing 888 new units to market, she noted.
For 2024, she predicted that while it would be difficult to imagine a 2022-era pace of development, she did believe more developers would soon apply for a new 12-year exemption extension option recently applied to two projects.
Developers can request a 12-year extension to add or maintain rent-restricted units to their projects.
The committee also noted that conversations and possible proposals next year could bring more changes to the MFTE program to help boost affordability.
Council member John Hines said that when considering future changes, there remains the ever-challenging balancing act between development costs and rents.
“We need more housing; we need more of it to be affordable. How do we get there?”
