This is a narration of our weekly Rent and Operating Trends Report.

The Fed Cuts Interest Rates

It happened much later in the year than many economists anticipated, but the federal funds ratewas finally lowered last week. At the beginning of the year, it was widely speculated that interest rates would be cut at least once by early summer, but it took until mid-September. 

The 50-basis point decrease put the benchmark rate in the current range of 4.75% to 5.00%. The latest expectations by voting members show interest rates could be cut an additional 50 basis points by the end of this year, and another 100 basis points by the end of 2025. 

It is believed interest rate cuts will help stabilize the job market which happens to be one of the biggest drivers of multifamily performance. 

Layoffs Down from Midsummer

Unemployment insurance claims have gradually decelerated based on data from the Department of Labor. Last week’s report showed 219,000 initial claims for the week ending September 14. It was the lowest weekly total since May 18, and it was down from a recent high of 250,000 claimsin July.

Initial claims represent the first week a worker files for unemployment, and analysts reference it as a more up-to-date proxy for layoffs. The recent trends are a positive indicator for the labor market, and they do not suggest a surprise is in store for next week’s national jobs report from the BLS.

Other Economic Notes

According to Freddie Mac, the average interest rate on a 30-year fixed-rate mortgage declined to 6.09% last week. This year’s peak rate was 7.22% in May. 

The Commerce Department reported that retail sales increased 2.1% on an annual basis in August, outperforming economists’ expectations. The trend suggests consumers do not fear a recession on the near-term horizon.

U.S. Multifamily Performance

Traffic declined 6.3 tours per property at the U.S. level, the lowest since January 2022. While some markets are on par with last year’s pace, practically all operators we have talked to in recent months have experienced more moderate traffic this year. Despite the slower traffic in 2024, occupancy rates have been stable at just below 94% all year.

Annual rent growth remains negative at the national level, but it has improved incrementally to the current pace of -0.6%. More than half of U.S. markets are now registering positive year-over-year rent growth, many in a range of 2% to 4%.

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This is a narration of our weekly Rent and Operating Trends Report.

CPI at Lowest Growth Rate in More than Three Years

The consumer price index (CPI) grew by 2.5% on an annual basis in August 2024. It was down from 2.9% the prior month, and it was the metric’s lowest annual growth rate since February 2021. Prices for gasoline and used cars dropped the most from a year ago, both were down more than 10%. 

The more moderate inflation numbers suggest consumers should have more purchasing power. According to BLS data, wages are growing faster than the price of goods and services. Real wage growth, which is the gap between the growth in earnings and consumer prices, registered 1.3% on an annual basis in August.

Delinquency Rates Rise for Credit Cards and Auto Loans

Despite the positive trend for real wage growth, many consumers are still struggling to keep up with monthly payments on bills. Credit card delinquency rates have increased from 4.1% at the end of 2021 to almost 9.1% as of Q2 2024. Auto loan delinquency increased from 5.0% to 8.0% during the same period.

The increase in interest rates is one of the reasons for the change. According to data from the Fed, credit card interest rates increased from approximately 15% in 2019 to 21.5% this year.

Interest Rates are Set to Decline

Investors and consumers are anticipating the Fed’s announcement on interest rates this week. Many investors are anticipating a 50-basis point reduction in the federal funds rate becauseinflation has eased and there are concerns the labor market has cooled more than expected. 

According to data from Freddie Mac, the average mortgage rate for a 30-year fixed-rate loan has already dropped considerably prior to changes in the federal funds rate. As of last week, the 30-year mortgage rate averaged 6.2%, down from almost 7.2% in April. The last time it was that low was in February 2023.

Occupancy Rates Trending Up in Many Markets

The U.S. occupancy rate registered 93.8% last week, down 24 basis points from the same week last year. At a more granular level, many markets are showing year-over-year improvements in their occupancy rate. 

As of the latest week, 18 markets had an occupancy rate above last year’s level, and three more had flat growth. Markets with positive annual occupancy rate changes averaged net effective rent growth of 1.9% during the past year. Markets with occupancy rates below the prior year’s levellowered rents by an average of 1.0%.

As supply levels subside, more markets should see an uptick in annual occupancy rate growth ifdemand holds.

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https://bit.ly/Radix_Website

This is a narration of our weekly Rent and Operating Trends Report.

Another Moderate Jobs Report

According to last week’s report from the Bureau of Labor Statistics, the U.S. labor market added 142,000 jobs in August 2024. While that number is in a decent, sustainable range, the two priormonths’ totals were revised down by a combined 86,000 jobs. 

It was another signal that the labor market has cooled more than previously reported. Still, the number of jobs created seems to be enough for many markets to stabilize multifamily rents and occupancy rates. 

It is widely believed the latest labor market report further supports an imminent interest rate cut by the Fed.  

Unemployment Rate Declines Slightly

The unemployment rate fell to 4.2% in August 2024. While it was a slight improvement from July, there were approximately 800,000 more people unemployed in August than a year ago.

While the overall unemployment rate increased from 3.8% a year ago, some types of jobs remain in high demand. Architecture and engineering occupations had an unemployment rate of just 1.7%, down from 2.6% the prior year. Jobs in the legal industry, as well as some jobs in healthcare, still registered unemployment rates below 2.0%. 

Healthcare and Construction Industries Led Job Creation in August

Job gains continued to be concentrated in just a few industries based on last week’s report. Healthcare and social assistance, which has dominated job creation the last year-plus, added 44,000 jobs in August. Construction added 34,000 jobs, and most of them were either in heavy and civil engineering or nonresidential specialty trade contracting. 

Employment in manufacturing declined 24,000 from the prior month, and other recent reports have indicated a decline in consumer demand for manufactured goods, a concerning sign for the economy. 

Multifamily Results Stable Despite Cooling Job Market

While recent labor market reports have been less than spectacular, it does appear multifamily performance is stabilizing in many markets. As supply has started to slow in many parts of the U.S., there has been enough job creation for occupancy rates to maintain close to 94% and more markets are seeing positive year-over-year rent growth. Of course, there are still certain markets and submarkets that have a longer path to recovery.

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https://bit.ly/Radix_Website

This is a narration of our weekly Rent and Operating Trends Report.

U.S. Economy Stronger than Initially Reported
GDP for the second quarter was revised upward last week by the U.S. Bureau of Economic Analysis. The initial report of 2.8% was already stronger than economists expected, and last week’s new estimate of 3.0% suggests the economy is still in good shape despite a cooling labor market.

The stronger growth was boosted by consumer spending, but there were downward revisions to other components such as business investment. 

Latest Inflation Reading Supports Interest Rate Cut
The personal consumptions expenditures price index (PCE) increased 2.5% from a year ago in July, or 2.6% excluding food and energy prices (core). Both rates were equal to June’s growth.

The core PCE growth is the Fed’s preferred measure of long-run inflation, and it is widely believed the reading further supports an interest rate cut later this month. It is believed lower interest rates would give a boost to the labor market, which would ultimately benefit the multifamily performance. 

BLS Releases 10-Year Employment Projections
Job growth is forecasted to be more moderate the next decade based on a forecast released by the U.S. Bureau of Labor Statistics (BLS) last week. From 2023 to 2033, U.S. employment is projected to increase by 6.7 million jobs, or an average of 0.4% per year. For comparison, annual average job growth was 1.3% from 2013-2023 even with the disruption from the pandemic.

Job creation will be constrained due to weaker growth in the labor force as more people in the baby boomer generation retire. Job growth is one of the strongest demand drivers for multifamily, and the projected slowdown will almost certainly impact the number of renter households created.

Healthcare and social assistance is projected as the top industry for hiring. Given the demands ofan aging population, nurse practitioners and physician assistants will have some of the largest job growth. Computer tech occupations are expected to have the second highest growth, driven by jobs in AI, cyber security, and computer services.

Annual Rent Growth Turns Positive for More Markets
Multifamily performance was consistent with recent reports. Rent growth took another small step towards nationwide stabilization. Effective rents were down just 0.8% from the prior year, and several markets were on the cusp of positive rent growth territory. Traffic remained off pace from last year’s level, but the U.S. occupancy rate was just under 93.9% at the beginning of September.

Explore our webpage for more insights and resources:
https://bit.ly/Radix_Website

Explore our webpage for more insights and resources:
https://bit.ly/Radix_Website

This is a narration of our weekly Rent and Operating Trends Report.

Fed Gives Strong Indication of Interest Rate Cut
In a speech last week, Federal Reserve Chair Jerome Powell said, “The time has come for policy to adjust.” The comment was in relation to an anticipated cut in the benchmark interest rate due to signs the labor market has cooled, and inflation measures have showed sustained downward pressure.
Higher interest rates have impacted the ability for consumers to purchase a home, which also has a ripple effect on the growth of other businesses, such as those like Home Depot. Additionally, the Fed reports the average interest rate for credit card accounts that assessed interest was 22.8% in May 2024 compared to 16.3% in May 2021.
The move to lower interest rates could also give a boost to multifamily transaction volumes, which have been significantly impacted by higher interest rates and lack of clarity on timing, direction, and magnitude of upcoming changes.
 
Radix Acquires redIQ’s Underwriting Platform
Just as multifamily transaction volume is likely to experience an upswing, Radix has acquired leading software for end-to-end underwriting, investment modeling, and forecasting returns.
Along with Radix’s operational benchmarks and research data, the combined products will create complete lifecycle insights from pre-investment to divestment.
Read the official press release here.
 
Consumer Confidence Jumps to Six-month High
According to The Conference Board, its index for consumer confidence registered the highest mark since February. While improved, consumers have mixed feelings about a variety of issues with so many factors in the economic and political headlines.
In aggregate, they were more upbeat on current business conditions, but simultaneously concerned about the labor market with the recent uptick in the unemployment rate. Note, overall consumer confidence remains below the levels for the three years before the pandemic.
 
Annual Rent Growth Turns Positive for More Markets
The U.S. multifamily industry continued to inch closer to broad-based stability in late-August. One year ago, only 10 of 45 markets had positive annual effective rent growth. Last week, 24 markets achieved that status. Even within most of the 21 markets that still show negative year-over-year growth, there are pockets of optimism.
In case you missed it, check out last week’s webinar and the associated slide deck that cover our outlook for multifamily performance. It also gives breakdowns of many U.S. markets and submarkets.

Explore our webpage for more insights and resources:
https://bit.ly/Radix_Website

Explore our webpage for more insights and resources:
https://bit.ly/Radix_Website

This is a narration of our weekly Rent and Operating Trends Report.

Moderating Inflation Supports Potential Fed Rate Cut

The consumer price index (CPI), a key measure of inflation, slowed to its lowest annual growth since March 2021. July’s CPI growth of 2.9% was down from a peak of 9.1% in June 2022. Earlier in the month the Bureau of Labor Statistics reported wages grew 3.6% during the same period, and the combined numbers suggest pressure is easing on consumers. The lower CPI alsosupports optimism for an upcoming interest rate cut by the Fed. 

Retail Sales Unexpectedly Increased in July

Sales at U.S. retailers grew by 1% from the prior month, which is important considering that consumer spending makes up approximately two-thirds of the U.S. economy. The increase was roughly three times higher than what economists had expected. The improvement was well received by analysts. According to Bloomberg, Goldman Sachs lowered its chance of a U.S. recession this year from 25% to 20% after the report of strong retail sales and lower jobless claims were announced late last week. 

Multifamily Permitting Levels Decline, Again

For June 2024, the latest reported figures, there were 451,502 multifamily units permitted in the U.S. on a trailing 12-month basis. That was down slightly from the prior month’s total of close to 455,000 units, and it marked the 20th time in the last 23 months that it has declined. From a year ago, multifamily permitting is down 23% at the national level. 

San Antonio’s 12-month total of 2,751 multifamily units permitted was down 80% from the prior year’s level. Oakland, West Palm Beach, and Portland each had multifamily permitting levels down more than 65%. Atlanta, Jacksonville, and Houston experienced declines of close to 50%.Most markets will see more moderate supply deliveries next year, which should help performance metrics return closer to long-term averages. 

One market bucking the trend is San Diego. While other markets are seeing significant drops in activity, its multifamily permitting levels have increased significantly. There were 8,804 units permitted in the last 12 months, double the prior year’s level.

Multifamily Performance 

While still negative, U.S. annual rent growth inched its way closer to flat with a -1.2% readingfor the latest week. Only a few markets, like Austin, still show a severe imbalance of supply and demand. Most others are displaying some form of stabilization for rents and occupancy rates, at least for certain submarkets or quality of assets.

Explore our webpage for more insights and resources:
https://bit.ly/Radix_Website

Explore our webpage for more insights and resources:
https://bit.ly/Radix_Website

This is a narration of our weekly Rent and Operating Trends Report.\

Mortgage Rates Decline

According to last week’s data from Freddie Mac, the average rate for a 30-year mortgage hit its lowest level in more than a year. It dipped to 6.47% as of August 8, down from a peak of 7.79% in October 2023. Even with the decline, affordability remains a major challenge in the single-family home industry. It has been almost two years since the average 30-year mortgage rate was below 6.0%.

Key Economic Data This Week

This will be a busy week for economics readings, and the following reports are highly anticipated after the unimpressive jobs report from a couple weeks ago. 

The producer and consumer price indexes for July will be released by the Bureau of Labor Statistics. They are key indicators related to inflation and most economists are hopeful they will trend in a direction that gives the Fed confidence to lower the benchmark interest rate at some point soon. The Commerce Department will report on the latest trends for retail sales which will shed light on consumer spending. Also, the University of Michigan’s preliminary report on August’s Consumer Sentiment Index will give us a view on how people feel about all the recent headlines in the economic and political worlds.

Unemployment insurance claims, metro-level job growth, and the number of buildings permitted for construction are among other metrics being released this week. 

EQR Purchases 11 Assets from Blackstone

Another large apartment acquisition was announced last week. Equity Residential (EQR) stated that it has agreed to purchase 11 assets from Blackstone for close to $1 billion. The assets are in the markets of Atlanta, Dallas-Fort Worth, and Denver. On average, the properties are eight years old. 

Multifamily Performance 

Apartment performance remained steady through mid-August. Rents are still below last year’s level in many MSAs, but the most turbulent times are likely behind a lot of markets at this point. The national occupancy rate has held close to 93.9% the entire year, and the U.S. is on track to absorb more than half a million units in 2024. As long as the economy holds, many areas are poised for growth rates closer to historical norms in 2025.

Explore our webpage for more insights and resources:
https://bit.ly/Radix_Website

Explore our webpage for more insights and resources:
https://bit.ly/Radix_Website

This is a narration of our weekly Rent and Operating Trends Report.

A softer-than-expected U.S. jobs report last Friday sent shockwaves through the investment world at the beginning of this week. At time of publication, all three major U.S. stock indexes were down more than 2.5% as the selloffs that started in Japan spread to other parts of the globe.

The movements followed one of the weakest jobs reports in the past few years, coupled with the Fed’s decision to leave interest rates unchanged during last week’s FOMC meeting. There is growing speculation that the Fed could make an off-cycle rate cut since the next meeting is not scheduled until September 17-18, but other executives and analysts suggest patience is needed.
In terms of the latest jobs report, the Bureau of Labor Statistics (BLS) reported the U.S. added 114,000 jobs in the month of July. It was the second lowest monthly total since the end of 2020, and job gains for the previous two months were revised downward by a combined 29,000 jobs. Job growth in the private sector remained very weak.

The unemployment rate increased to 4.3%, and wage growth slipped to 3.6%. Both of those numbers are still solid by historical norms, but the concern is more about the direction of the trend, especially for unemployment.
Many economists have noted that Hurricane Beryl likely influenced the latest jobs report by a degree, but the BLS reported it had no material impact on the nation’s overall results. Individual MSAs in the path of the hurricane, such as Houston, could show a dip in job growth when the metro-level reports are released later this month.

Multifamily fundamentals remained steady from the prior week, with some metrics slightly decelerating due to seasonality. Some of the largest tech markets are highlighted in this report for their improved apartment performance. San Francisco, San Jose, and Seattle were impacted significantly by layoffs in early 2023, which weakened demand for housing. Their metrics appear to be normalizing, which should speak to their underlying supply and demand fundamentals. Of course, tech stocks have taken some of the hardest hits in today’s developments.

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https://bit.ly/Radix_Website

This is a narration of our weekly Rent and Operating Trends Report.

The U.S. economy grew by 2.8% in the second quarter according to the initial estimate of GDP released last week. Consumer spending drove the strong quarterly growth, and the overall GDP increase was double the rate of growth in Q1. Despite elevated interest rates the economy continues to move forward at a strong clip. Speaking of interest rates, the June Personal Consumption Expenditures Core Index slowed from 3.7% to 2.9% on an annualized basis. As the Fed’s preferred measure of inflation, the slowing PCE should provide more fodder for the Fed to cut rates in the coming months. The Fed meets this week, and while I doubt rates will be cut at this meeting, they will likely use the opportunity to lay the groundwork for a September cut.

Multifamily fundamentals were mostly flat to negative last week at the national level. One metric showing modest improvement however is concessions. This is a welcome sight for operators who have been mired by high concessions for the past two years. As the end of the current supply wave progresses, concession activity will likely normalize to its long-term average. Certain sunbelt markets will maintain high concessions through the rest of this year and into next, but in time, concessions in those markets will also level out. Net effective rent also posted a modest gain last week.

Explore our webpage for more insights and resources:
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https://bit.ly/Radix_Website

This is a narration of our weekly Rent and Operating Trends Report.

The mid-year employment numbers by metropolitan area were released last week. Job creation is one of the most impactful demand variables for multifamily because it spurs the formation of new households, helping to boost occupancy rates and absorb supply delivered to the market.

While the U.S. headline numbers have been solid, year-to-date job growth has varied significantly by market. In fact, some markets have lost jobs this year based on initial estimates. According to the U.S. Bureau of Labor Statistics, Denver, Minneapolis, San Francisco, Portland, and Cincinnati had fewer jobs at the midpoint of 2024 than the beginning of the year. 

Out of that group, Denver’s reported loss of 5,400 jobs during the last six months is the hardest to rationalize since rent levels and occupancy rates have increased during the same period based on Radix data. That result would be hard to accomplish if demand was truly that weak. While San Francisco and Oakland lost 1,600 jobs on a year-to-date basis, that is significantly better than the nearly 14,000 jobs lost in the area during the first half of 2023 when tech layoffs were prominent. 

Staying in California, Los Angeles showed one of the biggest improvements, adding almost 39,000 jobs during the last six months. For comparison, Los Angeles lost 8,000 jobs during the first half of 2023. New York led the country with 77,000 jobs createdyear-to-date, increasing its employment base by 0.8%. Washington, DC, Houston, Miami, and Philadelphia each added more than 30,000 jobs with approximately 1.0% growth. On a relative basis, Charleston and Raleigh had the strongest job growth rates, each up more than 2.0%.

Multifamily fundamentals were mostly steady last week with slight declines in some metrics. The industry is nearing the end of prime leasing season, and performance related to traffic, leases signed, occupancy, and rent should start to decelerate in the weeks and months ahead.

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