Rent and Operating Trends – Week of January 8th 2023

Employment closed out the year on a continued high note as 223,000 jobs were added to the workforce in December, exceeding analyst estimates of 200,000 jobs. Despite headlines focusing on major layoffs in the tech industry, the overall employment market remains healthy as we enter 2023. Wages increased 30 basis point month-over-month and 4.6% on an annual basis, and both figures were slightly below analyst predictions. This led to strong speculation that general inflation will continue to come down. As a result, the 10-year treasury yield fell 25 basis points on Friday alone, to roughly 3.5%. While the inversion in the yield curve continues to expand, which may portend a recession in the coming months, the drop in the 10-year yield will be a welcome sight for real estate investors. Refinance activity in December and January will be elevated, as there appears to be a leveling in interest rates. Given the potential for higher borrowing costs in 2023, many owners, especially those with floating rate debt, are refinancing into fixed rate vehicles.

The Fed will hold their next policy meeting on January 31^st, which will allow almost all December and Q4 data to be released before their decision on interest rates. Inflation will continue to be the key indicator driving rate hikes, and at this point I expect either a 25 basis point or 50 basis point increase to the Fed Funds rate, depending on the speed of price increases in December.

Multifamily fundamentals were mostly quiet last week, although occupancy continues to show signs of bottoming. The pace of occupancy declines had been slowing throughout the fourth quarter and last week the national occupancy rate was unchanged from the prior week. Traffic had improved modestly in the third and early fourth quarters and we are now seeing the relationship between traffic and occupancy play out. Based on a study conducted last year, we found that on average there is an 18 week lag between traffic and occupancy. NER fell slightly again last week and will likely continue to fall over the next few months.