Fed Chair Jerome Powell gave a very middle of the road speech last week at the Kansas City Fed’s Jackson Hole symposium. The leader of the central bank acknowledged that tightening monetary policy has had its desired impact on inflation, but also warned that inflation may come back, thus warranting further interest rate increases. He neither suggested nor refuted that another interest rate hike would be needed, and the Fed will continue to monitor pertinent economic data before making their next policy decision in a few weeks. Two key data points they will be monitoring will be the Personal Consumption Expenditures Index (PCE) and second quarter Gross Domestic Product, both of which will be released this week. The PCE index is the Fed’s preferred inflation indicator and as of June measured 3.0% growth on an annual basis, just at the top end of the Fed’s ideal range.
Apartment performance continues to decline modestly at the national level. Rents are falling on a week-over-week basis, and leading indicators including traffic and leasing are either flat or negative from week to week. Interestingly occupancy has increased by the smallest of margins in each of the past two weeks, however the slight growth is not enough to indicate a longer-term trend in my opinion. With roughly four months remaining in 2023, key operating metrics will likely continue to soften, but the overall housing shortage and the increasing cost of home ownership will protect our industry from any major declines. Market-by-market weakness will be apparent as new supply is delivered and absorbed.
Key Takeaways – Data as of 08/27/2023
Traffic and Leases:
Average traffic nationwide fell slightly to 8.2 tours per property per week. National average leasing remained unchanged from the prior week at 2.7 new leases per property.
While traffic has fallen steadily over the past two months, the national average traffic remains above its level from this time last year. In fact, about two thirds of all markets tracked by Radix Research are seeing more traffic this year, compared to August 2022.
Leasing is very similar, and national leasing is up on a year-over-year basis. This underscores the demand that remains in the multifamily market and provides further evidence that the main driver of the current slowdown in rent growth and occupancy is on the supply side rather than the demand side.
Occupancy and ATR:
Occupancy nationwide increased one basis point last week to 94.26%. While an increase this small is nothing to get too excited about, it does provide some evidence that occupancy has found a bottom. National occupancy has been rangebound between 94.2% and 94.4% for the past nine months.
Some key markets gaining occupancy last week were San Antonio, Salt Lake City, Riverside and Atlanta. Each of these markets has lost more than 1.5% in market occupancy over the past year. San Antonio in particular has lost 2.8% occupancy on a year-over-year basis, but led our rankings last week, picking up 16 basis points.
Nationwide, the average apartment community has 14 units available to rent over the next 60 days, a modest increase on a weekly and annual basis.
Net Effective Rent:
Net effective rent for our same store sample fell 20 basis points last week and 1.5% on an annual basis. Rents fell in more than 70% of the markets tracked by Radix Research and increased in only five markets nationwide last week.
On an annual basis, roughly half of the markets tracked by Radix Research have seen rents fall by 3% or more.
Austin took over the top spot for largest annual rent declines, as the Texas Capital continues to battle the onslaught of new supply. Only one submarket, San Marcos on the far southern end of the Austin MSA, has posted an annual increase in rents.
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