Rent and Operating Trends Week of July 10th

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The U.S. economy continues to search for signs of optimism in the face of significant headwinds as we move into the third quarter. Persistent inflation has led to swift tightening of monetary policy which has in turn increased recession predictions from leading economists. While the short end of the treasury yield curve is increasing, yields on the long end of the curve have fallen since the last Fed meeting. The 10-year treasury rate fell below 3% last week after reaching as high as 3.5% in early June. This may be a welcome sight for borrowers looking for loans tied to the 10-year as many single family and multifamily loans are, however, 10-year yields are falling as a result of a more pessimistic future outlook for the macro economy. As of July 11th, the yield curve was inverted, as the yields on one- and two-year treasuries were higher than the 10-year treasury. A yield curve inversion is often a precursor to a recession.

 

Multifamily fundamentals, with the exception of NER, have turned negative as both seasonality and the macro economy have begun to impact the industry. While NER remains positive on both a weekly and annual basis, the rapid deceleration in rent growth continues. I believe the recession will be shallow and multifamily remains well positioned to weather the slowdown, however operating performance will likely take a hit in the coming months.

 

KEY TAKEAWAYS – DATA AS OF 7/10/2022:

 

Traffic and Leases:

 

  • Traffic and leases fell last week as fewer prospective renters are looking for apartments. The spring rental season was good, however traffic and leasing never reached their 2021 levels.
  • The national conversion rate was 32% last week, but that has fallen and is likely to continue to drop through the remainder of 2022.
  • Traffic fell the most in the popular sunbelt markets of Austin, Charlotte and Phoenix. While Austin and Charlotte are still averaging nearly 10 tours per property per week, the significant slowdown may be indicative of softer migration patterns. With significant new supply being added in these markets, occupancy and concessions will be key metrics to watch.

 

Occupancy and Leased Percentage:

 

  • Nationwide, occupancy fell three basis points while the average leased percentage fell two basis points.
  • Phoenix and Las Vegas, two of the hottest markets during COVID-19 lost 9 basis points of occupancy last week. Phoenix’s occupancy has fallen 1.8% year-over-year while Las Vegas’ average occupancy has dropped 2.7%.
  • As the economy weakens, migration may fall as people seek stability in their employment and housing situations.

 

Net Effective Rent:

 

  • NER increased 30 basis points nationwide last week and continues to rise in almost every market in the country. Tertiary markets Jacksonville, Tucson and Riverside were the only markets where rents fell last week.
  • Despite leading indicators showing signs of weakness, rent and concessions remain strong. Nationwide, concessions fell 11.2% last week.
  • As an indicator of the rapid deceleration in rent growth, none of the top 30 markets have annual rent growth greater than 20%. A few months ago there were numerous markets growing at 20% or more, with a handful of southeastern markets eclipsing 30% annual rent growth.

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Rent and Operating Trends Week of July 17th

Share This Post Following another increase in annual inflation, economic prospects for 2022 have dampened significantly. The annualized CPI increased 9.1% in June, the highest