RAOT

It was a fairly quiet week in the U.S. economy as the Thanksgiving holiday limited data releases last week. Existing trends continued from the prior week as the 10-year treasury continued to drift lower. The yield on the 10-year is now 4.42%, nearly 60 basis points below its recent peak in mid-October.

Is the monetary tightening cycle over? Has the Fed orchestrated the illusive soft landing for our economy, reducing inflation to a sustainable level without sending the nation into recession? The answers to these questions are still yet to be fully determined, however last week’s lower inflation report provides further evidence that future interest rate increases me not be needed.

The 10-year treasury is down about 35 basis points from its recent high in mid-October as signs of slowing fundamentals in the economy continue to arise. Mortgage rates have also fallen in recent weeks, prompting a slight uptick in demand for mortgages. The recent drop in mortgage rates may bring some renters back into the buyer pool, cutting into multifamily performance, however, I expect this to impact apartment demand only marginally.

October employment growth was weaker than it had been in previous months with new job gains totaling 150,000. August and September gains were revised down, painting a slightly more bleak picture of the employment market than we have seen in recent months. As a result, the 10-year treasury retreated quickly, although it remains high at 4.6%.

U.S. economic growth is gaining momentum following a very strong initial estimate of Q3 GDP. The broad measure of economic output showed the economy expanding at a 4.9% annual rate, more than double the growth rate from the first half of the year. Despite higher interest rates throughout the quarter, the American consumer continued to spend.

In what is perhaps something of a silver lining for the rental housing sector, recent data suggests it is the most expensive time to buy a single family home since the mid 1990s. But, as with all things in the current real estate market, there is more to the story.

Inflation remained unchanged in September with prices rising 3.7% compared to the year before. Annual price increases were flat after increasing in both June and July, according to the Consumer Price Index. On a short-term basis, prices increased 0.4% from the prior month.

The economy and interest rate market are working in opposite directions at this point in the cycle. 336,000 new jobs were added in September, nearly doubling analyst expectations. While this is good news for the overall economy, it raises additional questions about the Fed’s course of action with monetary policy going forward.

We are excited to announce some new changes to the Rent and Operating Trends Report beginning this week. Revenue per Available Unit (RevPAU) is a comprehensive apartment performance metric that combines net effective rent with occupancy to identify the total potential revenue given the number of operational units in a property, submarket or MSA.