For much of the past two years, the employment market has been the anchor of the U.S. economy, as strong job growth continuously countered the significant inflation and interest rate headwinds. However, that may be shifting, as the March jobs report missed expectations, the first miss in 12 months. This does not portend doomsday in the employment market; 236,000 new jobs were still added in March. For reference the last growth cycle between 2010 and 2019 averaged roughly 190,000 new jobs per month. Our overall employment market remains very healthy with an unemployment rate of 3.5% and an overall workforce larger than the pre-pandemic workforce, which at the time was lauded as the strongest employment market post WWII.
Last month’s softer jobs report may be a fleeting occurrence, but it is important to look at the larger perspective of the economy. Recessions have typically followed interest rate hikes by about 12-18 months. The Fed began raising rates in March 2022 and went on the most aggressive tightening cycle in recent history. Right now, the economic headwinds seem to be concentrated in a few sectors; tech, real estate, and banking to name a few, but as the impacts of higher interest rates permeate through the broader economy, we could see a broad recession by the end of the year.
Multifamily remains an industry divided between strong operations and a very challenging transaction market. As we move into April, leading indicators including traffic and leasing are doing well and rising. Occupancy is posting modest gains, and rents are growing in almost all markets across the country. The transaction market, however, lags significantly, as higher rates make it increasingly difficult for deals to pencil. This has been going on for nearly a year, and owners who have been able to extend their loans have done so. However, as we approach the end of 2023 and into 2024 there will be several loans across all financing types that will come due and leave owners in a difficult position. Selling will likely come at a discount to their expected valuations, refinancing will almost certainly come at a much higher rate than their original loan and thus eat into returns. Either way, transaction activity, which has been very quiet in recent months, should pick up at the end of the year.
Key Takeaways – Data as of 04/09/2023
Traffic and Leases:
Occupancy and ATR:
Net Effective Rent:
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