Author: Multifamily News

The Multifamily Bull Case: This Week’s Data

Final numbers for 2024: Multifamily builders started 254,100 fewer units than they completed. That’s the second-biggest deficit on record, behind only 1974. And it’s yet another clear indicator that new apartment supply will plunge by 2026.

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Article from Jay Parsons on the scary multifamily starts number released for December (causing the market to be concerned about an unexpected increase in new supply):

Seeing headlines about a December “surge” (by 62%!) in multifamily construction starts, based on today’s Census data release. It’s a mirage. There is no such spike. It’s just a methodology quirk resulting from how the Census annualizes “seasonal adjustments.” On a NON seasonally adjusted basis, the month of December 2024 came in lower than any December since the pandemic year of 2020. The Census seasonal adjustments always show wild, volatile swings in multifamily starts. It’s never been useful indicator.

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From This Week’s Pensford Letter – 1/21/2025

CPI has several components that feed directly into Core PCE, so economists always rush to update their PCE forecasts with greater accuracy. WSJ Fed-whisperer Nick Timiraos compiled some revised forecasts for the Fed’s preferred measure of inflation, and the m/m Core PCE is just 0.17%. That annualizes to just over 2%.

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From Nick Timiraos this week (considered the mainstream media’s voice for the Federal Reserve):

“CoreLogic reports single-family rent growth was up 1.5% for the year, the smallest increase in 14 years. Another data point today suggesting ongoing shelter disinflation is in store for the (lagged) official government measures.”

The Labor Department’s “all tenant rent” index, which leads shelter inflation in the CPI, rose at a much slower pace last quarter. It was up 3.2% over the four quarters ended Q4 (vs. 3.9% in Q3 and 5.5% one year ago). It’s very close to the 3.1% average between 2017-19.”

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In the ‘Great Stay’ economy, Americans feel stuck. Hiring right now is anemic (esp. outside healthcare & gov) People aren’t moving. Promotions and bonuses are down. People even keep cars for record time. People feel cemented in place.

What it means: A weaker jobs market makes the Fed more likely to cut interest rates.

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Per JP Morgan, politics historically have little impact on commercial real estate returns. It’s always about the economy.

The Multifamily Bear Case: This Week’s Data

From the January 2025 Realtor.com Rental Report:

  • It was the seventeenth consecutive month of year-over-year rent decline for 0-2 bedroom properties.
  • Rents nationally were down by 1.1% from the previous year.
  • The median asking rent fell to $1,695, dipping below $1,700 for the first time since April 2022.
  • Median rent fell consistently across all units of all bedroom counts. Studios were down 1.3% year-over-year, 1-bedrooms and 2-bedrooms were both down 0.9%.

From Zillow’s January Rental Market Report:

  • Multifamily rents fell 0.30% month-over-month
  • 40.9% of rentals on Zillow offered concessions, a new record
  • The share of rental listings offering concessions increased by 2.3% month-over-month
  • The share of rental listings offering concessions increased by 8.3% from last year
  • Rent concessions are up from year-ago levels in 48 of the 50 largest metro areas
  • Since pre-pandemic, the income needed to afford rent has increased by 33.4%

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Apartment market conditions declined in the National Multifamily Housing Council’s (NMHC’s) most recent Quarterly Survey of Apartment Market Conditions. All four indices – Market Tightness (40), Sales Volume (41), Equity Financing (48) and Debt Financing (32) – came in below the breakeven level (50), signaling less favorable conditions this quarter.

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The U.S. apartment market has now logged seven consecutive quarters of record supply, with the last three quarters of 2024 seeing especially significant deliveries.

The Multifamily Bull Case: This Week’s Data

Consumer Price Inflation (CPI) Report – Release Date 1/15/24

  • What It Is: Tracks the price change for of a basket of common items people use in their daily lives, such as food, clothing, housing, transportation, and healthcare.
  • Monthly reading was up 0.4% putting the 12-month inflation rate at 2.9%, in line with market expectations
  • Core CPI (removing food and energy) was 3.2%, below the previous month and better than the 3.3% the market expected
  • What It Means: The data coming in slightly better than consensus estimates increase the market odds for Fed cuts in the months ahead

Producer Price Inflation (PPI) Report – Release Date 1/14/24

  • What It Is: Tracks how much businesses are charging for the things they make, before they reach consumers. It’s like looking at the prices in the factory, not the store.
  • The monthly change was only 0.2% vs. expectations of 0.4%
  • Core PPI was unchanged month-over-month (0.0%)
  • What It Means: A cooler than expected PPI report, showing lower than expected inflation, gives the Fed more room to cut rates in the months ahead

This Pensford Letter – 1/13/24

Before everyone freaks out that rate cuts are causing the economy to surge, take a look at the monthly NFP averages since covid:

NFP (Non Farm Payroll Report) Monthly Average Of New Jobs:
2021: 604k
2022: 377k
2023: 251k
2024: 186k

Friday’s report showed a gain of 256k jobs – pretty much the average of 2023. Isn’t that a good thing? It’s still 60% lower than 2021. 600k per month is overheated. 250k per month isn’t.

The hiring rate fell to 3.3%, the lowest level since 2013. Professional services hiring is at 2009 levels. Private payrolls averaged 149k last year vs 192k in 2023. Plus, government/healthcare still made up 40% of the jobs – let’s see how that holds up under the DOGE microscope. Call me back in four months after revisions. This feels mostly like positive business sentiment from the Republican sweep. And more like stabilization, not spiking.

The Multifamily Bear Case: This Week’s Data

Redfin’s Monthly Rent Report – Released January 2025

  • The median asking rent fell 0.3% year over year in December to $1,594, the lowest since March 2022
  • Rents were down 0.1% from a month earlier, and down 6.2% from the August 2022 high of $1,700.
  • The median asking rent per square foot dropped 1.9% year over year in December to $1.78 and fell 0.1% month over month.
  • Asking rents fell across all bedroom counts for the sixth consecutive month
  • Asking rents have been falling because an influx of supply has left apartment owners with rising vacancies. Apartment completions surged 58.1% year over year to the highest level since 1974 in the third quarter—the most recent period for which data is available. As a result, the vacancy rate for buildings with five or more units rose to 8%, the highest since early 2021.

ApartmentAdvisor Monthly Rent Report – Released January 2025

  • Rents fell 1.9% month-over-month and 3.8% over the last 3 months

Yardi Matrix’s Monthly Rent Report – Released January 2025

  • Multifamily rents fell 0.20% and Single Family rents fell 0.30% month-over-month

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The average U.S. inflation rate since:

1930 = 3.1%
1940 = 3.7%
1950 = 3.5%
1960 = 3.7%
1970 = 3.9%
1980 = 3.2%
1990 = 2.7%
2000 = 2.5%

The future is never the same as the past, but the Fed’s 2.0% inflation target is a level we’ve never hit, other than the anomalous period in the 2010s following the Great Financial Crisis.

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The cap rates on single-family investment homes (which have not experienced the price declines of multifamily) are now trading below the 10-year treasury rate.

U-Haul’s Top Growth States: Where People Moved In 2024

Growth rankings are determined by each state’s net gain (or loss) of customers utilizing one-way U-Haul equipment in a calendar year. The index is compiled from over 2.5 million moving container transactions that occur annually.

South Carolina climbed three spots in the rankings to unseat Texas, which was number 1 the previous three years. It was the first time South Carolina reached number 1 on the rankings, and North Carolina was close behind at number 3.

California experienced the greatest net loss of do-it-yourself movers, and ranked 50th for the fifth consecutive year in 2025, followed by Massachusetts, New Jersey and New York.

Source: U-Haul

CNBC: Why Everyone Is Flocking To North Carolina

North Carolina’s Research Triangle – the area between Chapel Hill, Raleigh and Durham – has become one of the country’s fastest growing tech hubs largely thanks to its access to talent from some of the top universities in the country (Duke, North Carolina at Chapel Hill and North Carolina State) and low cost of living.

The state’s pro-business environment and low taxes have attracted tech giants like Meta, Apple and Amazon investing billions in the area. In 2024, the state was ranked second on CNBC’s America’s Top States For Business list.

Multifamily Bull Case: This Week’s Data

ADP Jobs Report – Release Date 1.8.25:

  • What it is: a monthly report that gives an estimate of how many jobs were added or lost in the U.S. private sector during the previous month. It’s published by ADP, a company that processes payrolls for businesses
  • 122,000 jobs in December, worse than the 140,000 expected. The lowest number since August.
  • Wage growth also cooled: workers who changed jobs saw a 7.1% increase in pay, while those who stayed saw a 4.6% gain. These were the lowest since mid-2021.
  • What it means: weaker jobs reports make it more likely the Fed will cut rates

From RealPage: U.S. apartment demand hit its highest level in nearly three years in 2024’s 4th quarter and easily outpaced concurrent new supply. “The U.S. apartment market has responded to the fears of oversupply with resounding appetite,” RealPage Chief Economist Carl Whitaker said.

  • In the October to December 2024 quarter, the U.S. absorbed 230,819 market rate apartment units, buoying annual demand to 666,699 units – the highest annual recording since 1st quarter 2022. 
  • As such, the imbalance between supply and demand has reversed, allowing for the first true absorption surplus of apartment demand since mid-2022.
  • With demand outpacing supply, the U.S. posted a meaningful annual occupancy bump to stand at 94.8% in December.
  • “The data suggests that the multifamily industry has ‘found the floor’ in 2024,” Whitaker said. “And it’s equally important to note that the past year has set the stage for operators to view the upcoming year as arguably the most ‘normal’ set of conditions seen since the turn of the decade. While the theme of some locally soft apartment markets will carry forward into 2025 (largely areas working through massive waves of new supply), it’s becoming increasingly evident that the apartment market at-large turned a corner in 2024 with 2025 setting up to be a year characterized by continued improvement.”

More from Jay Parsons on the incredible multifamily demand numbers:

  • Renters signing new leases for market-rate, professionally managed apartments are coming in well qualified with rent-to-income ratios below 23%.
  • Imagine what would be happening with rents right now if not for new apartment supply nearing 600k units in 2024 — the biggest number in 50 years. We just saw the 2nd best year on record for apartment demand.

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From Jay Parsons: New apartment supply in 2024 hit the highest levels since the mid-1970s. That’s why rent growth was flat nationally (and negative in many markets) even though demand was massive.

2024 was the supply peak, but more supply hits in 2025 before the big plunge in 2026. Starts are down to 10-year lows, and the ongoing total construction volume is nearly half it was at peak a couple years ago, so there’s good evidence to support the forecasts for low supply levels by 2026.

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CoStar reported:

  • Rents rose 0.6% in December, typically a difficult seasonal month to see gains
  • Rents rose 0.9% year-over-year in 2024

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It’s not just increasing monthly mortgage costs raising the barrier to homeownership and keeping more Americans renting. The cost of insurance and taxes for homeowners continues to rise dramatically. From the Wall Street Journal this week:

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Multifamily Bear Case: This Week’s Data

The BLS Jobs Report – 1.10.25 Release Date:

  • What it is: The main jobs report for the United States released monthly. Includes how many total jobs were added or lost, the unemployment rate, wages and changes within industries.
  • The number came in scorching hot: 256,000 jobs added vs. expectations of 165,000
  • The two previous months were revised lower by a combined 8,000 jobs
  • The unemployment rate dropped from 4.2% to 4.1%
  • What it means: While a strong employment market is positive for tenants paying their rent, it reduces the likelihood for Fed rate cuts in the months ahead.

University Of Michigan Inflation Expectations Report – 1.10.25 Release Date:

  • What it is: A survey where people are asked about their views on inflation. How much they think prices will go up in the short term (next year) and longer term (5 years ahead)
  • Surged to 3.3% for both the short and longer term, the highest reading on the longer term since 2008
  • What it means: If consumers and businesses expect inflation/prices to be higher in the future it causes them to make purchases sooner, which actually exacerbates the actual inflation in the economy (a self-fulfilling prophecy). The Fed tracks this data closely and will be less likely to reduce rates if inflation expectations are high

Following the BLS Jobs Report and UMich Inflations Expectation Report discussed above, the market is now pricing in only one rate cut in all of 2025: a 25-basis point cut bringing the Fed Funds rate down to 4.00 – 4.25% by year end.

As a reminder the 10-year treasury yield is historically 1.50% higher than the Fed Funds rate, which would put the 10-year treasury at 5.50% (it is at 4.75% today).

Weekly Unemployment Claims – 1.8.25 Release Date:

  • The number of Americans filing new applications for unemployment benefits fell to an 11-month low last week at only 201,000, well below the forecast of 218,000.
  • What it means: a stronger jobs market makes the Fed less likely to cut rates

ISM & JOLTS Report – 1.7.25 Release Date:

  • The Prices Paid in the ISM (manufacturing and services) report came in at 64.4, up from 58.2 the previous month, showing an explosion higher in prices paid
  • The Jobs Openings and Labor Turnover Survey (JOLTS) showed a higher-than-expected number of openings this month at 259,000, and also revised up an extremely strong previous month from 372,000 to 467,000
  • What it means: Rising ISM prices and a high level of jobs opening lowers market expectations for Fed rate cuts in 2025 and sent rates higher following the data release

ApartmentList’s January rent report:

  • The national median monthly rent fell 0.6% month-over-month
  • Year-over-year rents were also down 0.6%
  • Since the second half of 2022, rent prices have continued to ebb and flow with the seasons as they typically do, but with the overall trajectory trending modestly downward.
  • The national median rent has now fallen below its August 2022 peak by a total of 4.8 percent. 
  • The median time a unit is on the market to rent reached 36 days this month; the highest reading seen for this metric in any month going back to the start of 2019, when the data series begins.
  • The national vacancy index continues trending up slowly and currently sits at 6.8 percent, the highest reading since the onset of the pandemic.
  • 2024 saw the most new apartment completions since the mid-1980s, and with nearly 800 thousand units still in the construction pipeline, the supply boom has runway to continue into 2025.

 

North & South Carolina Continue Strong Population Growth

The U.S. Census Bureau released the 2024 population growth statistics this week.

Total U.S. Growth:

Net international migration, which refers to any change of residence across U.S. borders (the 50 states and the District of Columbia), was the critical demographic component of change driving growth in the resident population. With a net increase of 2.8 million people, it accounted for 84% of the nation’s 3.3 million increase in population between 2023 and 2024. This reflects a continued trend of rising international migration, with a net increase of 1.7 million in 2022 and 2.3 million in 2023.

Natural increase also contributed to the population growth, as births outnumbered deaths by nearly 519,000 between 2023 and 2024. This marks an increase from the historic low in 2021 when natural increase was just over 146,000, but it was still well below the highs in prior decades.

The South:

At nearly 132.7 million residents, the South is the most populous region. With a population gain of nearly 1.8 million — a change of 1.4% between 2023 and 2024 — the South added more people than all other regions combined, making it both the fastest-growing and largest-gaining region in the country.

The largest contributing component to this growth was international migration, which added 1.1 million people. Domestic migration netted another 411,004 residents. The South was the only region with positive net domestic migration, where the number of people entering the region exceeded those leaving. Natural increase also contributed 218,567 to the growing region.

States:

Source: U.S. Census Bureau