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Rent and Operating Trends Week of November 6th

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Rent and Operating Trends Week of November 6th

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The U.S. economy received another positive sign last Friday, as the October jobs report once again outperformed expectations. While the overall number of new jobs added was the lowest since the end of 2020, the 261,000 new positions exceeded analyst expectations. The tight employment market supports the likelihood that the economic slowdown is modest. Tuesday is election day and the result of the midterm, especially in a few key senate and house races will dominate the news cycle. Unless there is a sweeping Democratic victory, which I do not foresee happening, I expect little change to the economic trajectory for the coming year. A slight democratic or republican majority in either the Senate or the House of Representatives will not lead to wide scale legislation, and thus I expect further softening in the domestic economy until inflation comes down.

The October consumer price index will be released on Thursday and another high read will pave the way for the Federal Reserve to hike interest rates another 75 basis points next month. After last week’s increase, the Fed funds rate is now at its highest point since 2008. In his remarks last week, Chair Jerome Powell indicated that interest rates will likely have to be raised to a higher level than initially anticipated when the Fed embarked on their current path of monetary tightening.

Multifamily fundamentals continue to weaken, although there are potential signs of a bottoming out across different indicators. Traffic and leases have been flat for a number of weeks, and occupancy losses are slowing. Net effective rent continues to fall, but rents are a lagging indicator to traffic and occupancy.

Key Takeaways – Data as of 11/06/2022

 Traffic and Leases:

  •  Traffic and leasing once again remained unchanged at the national level, with the national conversion ratio holding at 31%.
  • 13 of the top 30 metros saw increased traffic, led by sunbelt growth markets Orlando, Tampa, Miami and Charleston.
  • Demand cooled in gateway markets last week, as the bottom 3 markets for weekly changes in traffic were Boston, Los Angeles and Chicago.

Occupancy and Leased:

  • After occupancy dropped by 7 or more basis points for a number of consecutive weeks, a glimmer of hope may be emerging, as the national occupancy rate fell by only 3 basis points last week. The national average occupancy rate is 94.67% and if we are seeing a bottom for occupancy, it will support the notion that we remain in a general housing shortage.
  • On a market-by-market basis we have returned to pre-pandemic norms, with New York and California markets leading the nation in occupancy, while high growth and high supply sunbelt markets including Las Vegas, Phoenix, Houston, Atlanta and Dallas lag the national average.

Net Effective Rent:

  • NER fell another 20 basis points last week.
  • Rents fell the fastest in San Francisco, San Jose and Seattle. San Francisco rents continue to struggle and are essentially flat on a year-over-year basis. While San Jose rents have grown in the past 12 months, the Silicon Valley metro’s average NER is only $27 or 80 basis points higher than its pre-pandemic level.


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