The June consumer price index showed weaker inflation than economists estimated, with prices rising 20 basis points month-over-month. On an annual basis the CPI increased 3.0%. While the Fed prefers to monitor the personal consumption expenditures index for inflation, last week’s CPI release will be the final data point on inflation before the next Fed meeting. There has been heightened speculation that the Fed will raise interest rates again next week, after taking a pause in June. However, the Fed has also been transparent in its desire to bring inflation back to the 2-3% range. Now that price growth has cooled to that range, many economists are arguing for the Fed to keep their policy actions neutral. Momentum has clearly shown that inflation is slowing, based heavily on the monetary tightening the Fed has already enacted. Whether or not the Fed raises next week, the economic indicators have clearly displayed the need to end the tightening cycle.
Apartment fundamentals softened last week, with all major indicators dropping at the national level, except for net effective rent, which remained unchanged from the week before. Occupancy fell three basis points nationwide last week, and while three basis points may not sound like a lot, it represents the largest weekly decline in months. Traffic and leasing dipped as well, and as we move into the third quarter, it appears likely that the apartment market will not cross either the nine tours per property threshold or the three leases signed per property threshold. The spring rental season did not yield the growth many expected at the beginning of the year.
Key Takeaways – Data as of 07/16/2023
Traffic and Leases:
Traffic dipped in most markets last week, in fact only three markets, Jacksonville, Salt Lake City and Chicago, registered traffic increases. 29 markets saw traffic fall, led by Charlotte, which lost nearly a full tour per property on average last week.
Leasing activity was similar, as California metros Los Angeles, San Diego, and San Jose were the only markets in which leasing increased. The lack of traffic hurt Charlotte’s leasing as well as the North Carolina market experienced the largest drop in leases signed.
The nationwide conversion ratio is 32%, and while that rate may maintain itself in the coming months, the deterioration in both traffic and leasing does not bode well for apartment fundamentals for the remainder of the year.
Occupancy and ATR:
Occupancy followed a similar trend to traffic and leasing. Four markets, led by Las Vegas, registered occupancy gains. While Las Vegas had a good week, the market’s overall occupancy rate of 93.3% is nearly a full percentage point below the national average.
Chicago occupancy fell the furthest last week, losing 14 basis points. Occupancy in the Windy City fell below 95%, and its year-over-year occupancy rate dipped into negative territory for the first time since early 2023.
With Chicago’s annual occupancy growth turning negative, every single market tracked by Radix Research now maintains a lower occupancy rate than at this point last year.
Net Effective Rent:
NER was flat at the national level, but remains mixed at the market level. Roughly half the markets saw rent increases last week, while the other half were flat or down.
Tucson continues to perform well and rents in the small Arizona MSA increased 1.1% last week.
Most rent growth last week was in secondary markets in the southeast and Texas.
Salt Lake City, Nashville and Houston continue to struggle with rents declining in the face of heavy new supply pressure.
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