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Rent and Operating Trends Week of December 11th

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Rent and Operating Trends Week of December 11th



As we approach the end of 2022, the last few major economic indicators will be released this week. The Consumer Price Index decelerated once again in November falling to 7.1% on an annualized basis from 7.7% in October. Yes, 7.1% is still historically high inflation, and the Fed will continue to raise rates to combat rising prices, however the continued deceleration is a welcome sight across the economy. As has been widely predicted, the Fed will likely increase rates only 50 basis points at their upcoming meeting on Friday. Inflation peaked in June and has now retreated for 5 consecutive months. As a result of the softer inflation read, the 10-year treasury rate fell below 3.5%. With inflation coming down, I expect the 10-year to continue to fall, which should drive fixed rate mortgages down along with it. The yield curve inversion will get more severe, which not only serves as a potential harbinger of recession, but it also bifurcates the multifamily borrowing market. Construction loans, bridge loans, and floating rate debt are typically tied to the short end of the yield curve and vehicles including LIBOR and SOFR. As the Fed raises rates, these rates will continue to rise. However, fixed rate debt, which is often tied to the 10-year treasury will get more affordable for multifamily investors. This may lead to a divergence in the transaction market, with deals financed by fixed rate debt getting done at a faster pace than those tied to floating rate debt.

Multifamily performance continues to slow through the fourth quarter with all major metrics either dropping or remaining flat. The slowdown across the industry has been less severe than the volatility seen in the prior two years and supports the notion that we have returned to a normal seasonal trend.

Key Takeaways – Data as of 12/11/2022

Traffic and Leases:

  • Traffic nationwide remained unchanged last week and will likely soften in the final two weeks of the year. Year-over-year, traffic growth remains slightly positive as we move into 2023.
  • The highest traffic remains in sunbelt markets and San Jose. The Silicon Valley city had the most traffic last week with an average of 10.2 tours per property. Other leading markets were Dallas, Houston, Charlotte, Miami and Atlanta.
  • While the large sunbelt markets dominate the traffic data, some of their smaller neighbors have the highest conversion ratios. Austin, San Antonio, and Jacksonville all maintain conversion ratios of 36% or more, some of the strongest ratios in the nation.

Occupancy and Leased:

  • Nationwide occupancy fell 2 basis points last week. The pace of occupancy declines appears to be slowing, further supporting the underlying demand for multifamily in most markets.
  • After numerous weeks in which all major markets saw occupancy declines, we are starting to see some modest increases in a number of markets. 8 of the top 30 markets registered occupancy gains last week, including Miami and Tucson, AZ, whose occupancies bounced back above 95%.
  • Some of the largest occupancy declines were seen in New York, San Diego, and Boston, three of the markets with the highest occupancy rates in the country.

Net Effective Rent:

  • NER dipped 10 basis points nationwide last week.
  • Despite the drop at the national level, a few markets including Las Vegas and Houston, saw NER increase. NER in both markets have been hit hard this year with new supply and a pull back from historic 2021 growth pushing rents downward. However, slight growth to end 2022 would potentially indicate a turning point and reason for optimism in the coming year.

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