Bull vs. Bear: Multifamily & Interest Rate Data This Week – 11/17/24

Bull Case – Why Rates Should Fall & Multifamily Values Should Rise:

Trump’s tariffs may end up being more bark than bite. If you look at every input component for PCE (the Fed’s favorite inflation index), Chinese imports make up only 3.1% of the total (contrast that with the shelter component at close to 20%, which moves on a lag and continues to help lower monthly inflation readings).
During Trump’s first term enacting tariffs, PCE averaged only 1.6% before Covid hit. We live in a different world now in many ways, but tariffs did not send inflation skyrocketing his first time around.

The shelter index (cost of renting) increased by 0.4 percent in November. This data is received on a lag and many economists believe it will fall significantly in the months ahead.

Multifamily rents rose 0.9% year-over-year
Single-family rents rose 0.3% year-over-year
The decline in multifamily starts will cause deliveries to drop sharply in 2026-2027, potentially providing a strong boost to rent growth
The U.S. has severely underbuilt housing since the 2008 recession
Rents continue to steadily move higher:

Dues are rising faster than inflation for many of the roughly 76 million residents of communities that keep shared pots to pay for expenses.
Condo association dues are up 6% nationwide this year versus last
Nearly a third of the U.S. housing stock is part of community associations
In 2024, 9% of homeowners will pay more than $500 a month in HOA fees, compared with 6% in 2020

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Bear Case: Why Rates Should Rise & Multifamily Values Should Fall:

Rents fell 0.6% month-over-month
Asking rent per square foot fell 1.1% year-over-year, the 18th consecutive month with a decline
Raleigh, NC experienced the largest rent decline in the country, falling 8.8% year-over-year. Rents fell 10.2% on a per square foot basis

Headline CPI rose 0.20% month-over-month, which re-accelerated the year-over-year rise up to 2.6% (moving further away from the Fed’s 2.0% target)
For the 53rd straight month, core consumer prices rose on a month-over-month basis (0.3%) with the year-over-year re-accelerating to +3.33% (moving further away from the Fed’s 2.0% target)
Supercore inflation, a key metric the Fed follows, is at 4.4% year-over-year
Shelter inflation rose 4.9% year-over-year and has been above 3.0% for 37 straight months
These higher-than-expected inflation readings could slow down the Fed’s pace of rate cuts

Multifamily rents fell 0.17% month-over-month
The worst 11 performing markets are all in the southeast and southwest
Single-family rentals declined $8 month-over-month, the worst monthly drop in years, and occupancy fell to 95.1%
Supply has grown more than absorption in 2024, with the average occupancy rate falling to 94.7%

Headline PPI rose 0.2% month-over-month (as expected) but September was revised higher from 0.0% to 0.1%.
Annually, headline PPI rose 2.4%, higher than the 2.3% expected (moving further away from the Fed’s 2.0% target). September was revised higher from 1.8% to 1.9%.
Core PPI (excludes food and energy) rose to 3.1% year-over-year, hotter than the 3.0% expected. The prior month was revised up from 2.8% to 2.9%. This was the second hottest print since March 2023.
These higher-than-expected inflation readings could slow down the Fed’s pace of rate cuts

“The economy is not sending any signals that we need to be in a hurry to lower rates”
“The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
He said the economy was sending no distress signal that might prompt the Fed to accelerate rate cuts, and to the contrary “if the data let us go a little slower, that seems a smart thing to do.”
Powell said the current situation was actually “remarkably good.”
The economy’s strengths include a still-low 4.1% unemployment rate, growth at what Powell called a “stout” 2.5% annual pace that remains above Fed estimates of its underlying potential, consumer spending driven by rising disposable income, and growing business investment.

Retails sales rose by 0.4%, beating expectations of 0.3%
The previous month was revised up to 0.8%
This higher-than-expected economic data could slow down the Fed’s pace of rate cuts

The general business conditions index climbed forty-three points to 31.2, its highest reading since December 2021. There was also a sharp increase in orders and shipments.
It was the second largest month-over-month jump in the survey’s history
This higher-than-expected economic data could slow down the Fed’s pace of rate cuts

Published by Rose Multifamily