Rent and Operating Trends Week of December 4th

Last week was a strong week for economic indicators as both the GDP and employment report exceeded analysts’ expectations. In its second estimate, GDP was revised upward to an annualized rate of 2.9% in the third quarter. The increase represents a sharp bounce back from contraction in the first two quarters of this year. Non-farm payrolls increased by 263,000 in November, well above the roughly 200,000 new jobs that most analysts were predicting. While employment gains continue to decelerate, the quarter million new jobs added last month indicates how tight the labor market remains, despite headlines being dominated by large tech layoffs. The unemployment rate remained at 3.7%, well below the long-term average and wages continued to rise, increasing 60 basis points last month alone. On an annual basis, wages are up 5.1%.

Speaking at the Brookings Institute last week, Fed Chair Jerome Powell indicated that the Fed may begin slowing the pace of interest rate hikes at its upcoming meeting in December. While rates are likely to continue to rise until inflation falls back to roughly 2%, Powell’s remarks indicate the first change since the Fed began raising rates in early 2022. The prospect of lower inflation has caused the 10-year treasury to drop roughly 50 basis points in the past month. The yield curve inversion continues to steepen with the 10-year treasury now roughly 20 basis points below the 1-month treasury. In previous cycles, an inverted yield curve has been a strong predictor of a recession.

Multifamily fundamentals continue to decline as apartment demand cools during the holiday season. Traffic fell below 7 per property per week for the first time since January, and all other key operating metrics were also negative last week. As the industry normalizes from last year’s historic growth, I expect to see continued softening in the coming months.