Weekly Jobless Claims – Data Released 12/12/24

• What It Is: Show how many people filed for unemployment benefits during the past week
• Claims jumped from 225,000 last week to 242,000 this week, much higher than expected
• What It Means: A weaker jobs market could make the Fed more aggressive cutting rates in the months ahead

This Week’s Pensford Letter (12/9/24): If This Month’s Employment Report Focused On The Unemployment Rate, Instead Of The Headline Payrolls Number, Here Is How It Would Read:

• The labor market deterioration accelerated in November as the economy shed another 355k jobs.  
• The unemployment rate ticked up to 4.2% but benefitted from rounding down. The true print was 4.246%, which gets reported as 4.2%. Had just 6,700 more people reported being unemployed, the headline UR would have been 4.3%. It was 3.3% a year ago.  
• Over 7.1 million Americans are now unemployed, an increase of nearly one million from last year. The number of workers settling for part-time jobs due to weak economic conditions has ballooned to 4.5 million, up from 4.0 million last year.
• Long-term unemployment, a key indicator of structural labor market problems, is up 41% over the past year. 1.7 million workers have now been jobless for over 6 months, up from 1.2 million a year ago.
• The employment-population ratio continues its worrying decline, dropping to just 59.8%. More Americans are simply giving up looking for work, with labor force participation falling to 62.5% – extending a concerning downward trend that began last December.
• The unemployment to employment ratio, which measures the % of unemployed that became employed last month.  Excluding covid, it’s at its lowest level in 10 years.
• The overall hiring rate fell to 3.3%, lowest since June and comparable to 2013 levels.
• Job openings are still down 36.4% from March 2022 peak.
• Full-time jobs fell 111k, part-time down 268k.
• Multiple job holders increased by 275k.
• Permanent layoffs are trending higher, now above 1% of labor force.
• Average monthly job revisions of -36k since December 2022, a level rarely seen outside recessions.

This is why the market’s odds of a Fed rate cut rose to 86% after the jobs report. But what about the 10 Year Treasury? Given the high correlation between oil and rates, it looks ready to fall below 4% in the weeks ahead:

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Global central banks have conducted 62 rate cuts over the last 3 months, the most since the 2020 pandemic. This is the 4th fastest pace of rate cuts this century. To put this into perspective, during the peak of the Financial Crisis in 2009, global central banks implemented 76 rate reductions.

What it means: If rates are falling around the world it makes United States yields, included multifamily cap rates, more attractive to global investors.

City	State	1 Year	6 Month	3 Month	1 Month
Greenville	NC	8.55%	2.30%	1.39%	1.88%
Apex	NC	4.60%	-2.02%	-0.79%	-0.21%
Fayetteville	NC	4.33%	2.46%	-1.31%	-0.50%
Winston-Salem	NC	3.55%	2.06%	-1.22%	-1.47%
Greensboro	NC	1.52%	-0.96%	-1.48%	-0.96%
Burlington	NC	1.48%	-3.61%	-2.84%	-0.45%
Mooresville	NC	1.47%	-0.65%	-1.10%	-0.91%
Columbia	SC	0.95%	-0.17%	-1.43%	-1.09%
North Charleston	SC	0.89%	-2.19%	-2.52%	-1.28%
Charleston	SC	0.68%	-1.16%	-3.80%	-1.93%
Cornelius	NC	0.63%	-4.58%	-4.39%	-3.55%
Asheville	NC	0.21%	-0.75%	-1.15%	-0.48%
Wilmington	NC	-0.08%	-1.88%	-3.18%	-1.42%
Mount Pleasant	SC	-0.29%	-2.66%	-3.79%	-1.93%
Greenville	SC	-0.29%	0.29%	-0.07%	0.37%
Rock Hill	SC	-0.48%	-0.88%	-3.14%	-1.04%
Chapel Hill	NC	-1.04%	-2.67%	-2.40%	-0.63%
Cary	NC	-1.05%	-2.71%	-3.40%	-1.12%
Huntersville	NC	-1.19%	-0.95%	-1.60%	-0.95%
Garner	NC	-1.44%	-1.03%	-1.50%	-1.23%
Matthews	NC	-1.59%	-1.21%	-1.96%	-0.64%
Charlotte	NC	-2.35%	-2.02%	-2.56%	-0.98%
Durham	NC	-2.70%	-3.89%	-4.24%	-1.77%
Raleigh	NC	-3.42%	-3.62%	-3.22%	-1.00%
High Point	NC	-3.59%	-0.18%	-0.90%	-0.36%
Morrisville	NC	-4.04%	-3.49%	-3.49%	-0.71%
Gastonia	NC	-4.75%	-1.23%	-1.79%	-1.39%

Source: Apartment List

ADP Jobs Report – Data Released 12/4/24

• What it is: A monthly report that gives an estimate of how many new jobs were created in the U.S. private sector. It’s published by a company called ADP, which processes payrolls for many businesses.
• 146,000 new private jobs were created in the private sector last month, below the expectations of 166,000.
• The previous month was also revised down to 188,000.
• What it means: A weaker than expected report makes the Fed more likely to cut interest rates

CoStar Reports Multifamily Prices Rising:

• The value-weighted index of multifamily prices rose 1.4 percent month-over-month in October. The index was down 7.1 percent year-over-year.
• Multifamily prices are below their longer-term trend line, which would be positive for prices in the coming years ahead if they begin to mean revert.
• Prices are now down 25.2% from the high reached in July 2022

Freddie Mac: Housing Is Undersupplied By Millions Of Units:

• Despite adding 5.8 million housing units over approximately four years (since our previous estimate), housing demand has increased by almost the same amount, resulting in very little progress in reducing the housing shortage.
• In the aggregate, we estimate that U.S. housing stock is 3.7 million units below what is needed given our current population and assuming inflation-adjusted housing costs returned to historical levels. 

Apartments Remain The Favorite Asset Class Among Real Estate Investors:

• Apartments accounted for 37% of all commercial real estate sales in 2024’s 3rd quarter, and they are back in line with pre-pandemic standards
• Sales during the quarter totaled $35.8 billion, a 9% year-over-year increase, which marked the second consecutive quarter of year-over-year growth
• Sales over the past two quarters averaged $38.3 billion, aligning with the pre-pandemic norm from 2015 through 2019

2024 Migration Trends: National Association Of Realtors:

• The Carolinas rank third and fourth for the largest net migration in 2023:

The discount to rent vs. buying remains at the highest levels in decades.:

The December BLS Jobs Report – Data Released 12/6/24

• What it is: A summary of the total jobs gained or lost in the previous month, the unemployment rate, wages and work hours
• 227,000 new jobs were created this month, beating expectations of 214,000
• The previous two months were revised higher by an additional 56,000 jobs
• The unemployment rate rose slightly to 4.2%
• Hourly earnings rose .4% month-over-month, beating expectations of .3%
• What is means: A stronger jobs report with higher-than-expected wage growth makes the Fed less likely to aggressively cut interest rates

Atlanta Fed GDP Now Forecast – Data Released 12/2/24

• What it is: “The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. Our GDPNow forecasting model provides a “nowcast” of the official estimate prior to its release by estimating GDP growth using a methodology similar to the one used by the U.S. Bureau of Economic Analysis.”
• The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2024 is 3.2% on Dec 2, up from 2.7% on Nov 27.
• What it means: If GDP growth is accelerating, it will make the Fed less likely to cut interest rates

JOLTs Report (Job Openings & Labor Turnover Survey) – Data Released 12/3/24

• The number of jobs openings came in at 7.74 million (higher than the 7.48 million expected)
• More job openings indicate that employers are actively seeking to hire and signals a tighter labor market where employers struggle to fill positions
• Increased competition for jobs can lead to higher wages as companies offer higher compensation to attract employees
• The number of quits also rose, indicating more confidence among workers about finding another job
• What it means: The stronger than expected JOLTs data makes the Fed less likely to cut interest rates

Jerome Powell’s Interview At The Dealbook Summit – 12/4/24

• Powell again emphasized that there’s little urgency for the Fed to lower interest rates quickly, given the uncertainty in the inflation outlook and a solid current economic backdrop.
• “The economy is strong, and it’s stronger than we thought it was going to be in September,” Powell said. “The downside risks appear to be less in the labor market, growth is definitely stronger than we thought, and inflation is coming a little higher. So the good news is that we can afford to be a little more cautious as we try to find neutral.”
• What it means: The strength in the labor market and sticky inflation may slow the Fed down with interest rate cuts in the months ahead

The Beige Book – Data Released 12/4/24

• What it is: A report that gives a snapshot of the U.S. economy. It’s like a collection of stories and observations from different regions of the country about how businesses are doing.
• Though growth in economic activity was generally small, expectations for growth rose moderately across most geographies and sectors.
• The Fed’s districts reported that inflation was rising only modestly, and companies had more trouble passing on higher costs as consumers grew more discerning about pricing.
• Hiring was seen as subdued with low worker turnover, while layoffs were also limited. Business contacts said they expected steady to modest growth in employment.
• What it means: Relative to recent months that had a more negative tone (which Jerome Powell commented on after their first 50 basis point cut), this report reflects stronger growth and makes the Fed less likely to cut interest rates.

Multifamily CMBS Delinquency Rate Rose Sharply This Month:

• Multifamily delinquency rose 94 basis points to 4.18% this month. One year ago, it was at 2.46%

Apartment List December Rent Report:

• The national median rent dipped by 0.8% in November, as we get further into the slow season for the rental market. Nationwide rent fell $12 to $1,382, and we’re likely to see that number dip one more time before the year ends.
• Since the second half of 2022, the seasonal declines in rent prices that take place during the fall and winter have been steeper than usual and seasonal increases of the spring and summer have been milder. As a result, apartments are on average slightly cheaper today than they were one year ago. Year-over-year rent growth nationally currently stands at -0.6 percent and has now been in negative territory for nearly a year and a half.
• On the supply side of the rental market, our national vacancy index continues trending up slowly and sits at 6.8 percent, the highest reading since the onset of the pandemic.

The Number Of Cost-Burdened Renter Households Hits All-Time High

• Broadly accepted financial wisdom dictates that a household should spend no more than 30 percent of its gross monthly income on housing costs.
• More than half spend above that level, qualifying them as “cost-burdened.”
• More than one-in-four renter households spend over 50 percent of their income on rent, making them “severely cost-burdened.”
• The cost burden rate could even be underestimating the degree to which housing affordability has worsened. A lack of affordability has deterred new household formation in recent years, as Americans are increasingly doubling up with family or roommates to save on housing costs. These individuals are struggling with housing affordability, but because they don’t represent their own households, they are not captured in cost burden statistics.
• Additionally, as the affordability of for-sale housing has eroded even more rapidly than that of rentals, more prospective homebuyers are continuing to rent. This subset of renters who have been sidelined from the for-sale market tend to be higher-income, and their presence in the denominator of the renter cost-burden rate could be depressing that rate slightly.

Scheduled Apartment Supply Peaks By Market (12/2/24)

Texas and the Carolinas are really going to test the depth of demand in the coming few quarters when their supply peaks in the first half of 2025. There may be a slower return to normal revenue growth levels due to sheer volume, and supply’s impact is cumulative over a multiple-year period.

CRE Investors Evaluate Distress Signals:

• Apartments have been a top investment target for many years, but tighter margins combined with economic headwinds have led to more investor jeopardy, especially for value-add multifamily product. There are some signals that suggest a wave of distress is incoming.
• “I believe the canary in the coalmine is property liens,” says Kidder Mathews SVP Nathan Thinnes. “Vendors are usually the first to not get paid, and we’re seeing a big uptick in accrued liens, specifically in the multifamily space.”
• “Any hopes borrowers have of a lower cap rate environment to aide in their workout solution is quickly fading.”

Visualizing the decline in property values based on a rise in cap rates and assuming NOI stays equal. This, of course, works in the opposite direction if cap rates fall (property values rise).

In this example using a $1,000,000 NOI, a class B property that traded at $22.2 MM (4.50% cap rate) at the market peak in 2022, would trade at $17.3 MM today using a 5.75% cap rate and the same NOI (the blue line scenario below):

Source: James Eng

From this week’s Pensford Letter (11/25/24):

• When the Fed Funds interest rate is higher than the inflation rate, we have positive real interest rates. That, in turn, applies the brakes on the economy. With Fed Funds at 4.5% – 4.7% and Core PCE at 2.7%, we have positive real rates of 2%, aka braking action.
• This is why Powell continues to stress that rates are restrictive. CPI has fallen from 9.1% to 2.6%. Monthly job gains have dropped from 550k to 150k.

• The neutral rate is a hypothetical rate where the Fed is neither encouraging or discouraging growth, then you add inflation.
• Every other meeting the Fed provides forward guidance through the blue dots seen below. It’s where they think the Fed Funds rate will be at that point in time.
• When you read a headline that the Fed’s expectation for long term neutral is 2.8%, it’s really the median blue dot of these projections. Here’s September’s projections:

• If the 3.75% dot is accurate, we are just 0.75% away from neutral. If the 2.25% dot is accurate, we are still 2.25% away from neutral. The range is 2.3% – 3.75%. That’s a huge range, which signals uncertainty and a widening difference of opinions.
• But every single one of them is below the current level of 4.5% – 4.75%, which is why it’s reasonable to conclude they will keep cutting. It’s also why Chicago Fed President Austan Goolsbee said, “I still think we’re far from what anybody thinks is neutral. We still got a ways to come down.”

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Collier’s Quarterly Market Snapshot:

• For the second consecutive quarter, the multifamily market has posted year-over-year sales gains. The number of properties traded has settled, indicating that the market is finding an equilibrium.
• Volume over the past two quarters is in line with quarterly averages from 2015-2017. While it doesn’t match the levels seen during the booming days of 2021 and 2022, it still reflects a time of healthy market activity and liquidity. Given the sector’s continued tailwinds, multifamily looks to remain the most traded asset class for the foreseeable future.
• Market fundamentals are nearing an inflection point. New deliveries, which are at multi-decade highs, have been met with near-record demand. Occupancies have slipped, but not to the extent expected given the supply-side pressure.
• As this construction cycle abates, and limited groundbreakings follow, occupancies are projected to improve, supporting future rent growth in the quarters, and years ahead. This trend should bring additional capital off the sidelines as investors gain confidence in a near-term market rebound.

New starts are down 74% since mid 2022:

The Fed’s preferred measure of inflation (Core PCE) moved up to an annualized rate of 2.8% this month, the highest reading since April (Data released 11/27/24):

• The Fed’s inflation target is 2.0%, so if inflation data remains sticky in this range or continues to move higher, it will make it more difficult to continue cutting rates unless unemployment begins to rise to worrisome levels

A Wave Of Troubled Multifamily Maturities Loom:

• Trepp data reveals there are currently more than 5,800 multifamily loans representing $96 billion with a DSCR below one.
• 79% of these loans comprise of floating-rate debt with a weighted average interest rate of 7.8% today.
• The estimated cap at securitization for multifamily properties has been in the 5.2% to 5.7% range in recent years.
• In addition to higher borrowing costs, multifamily owners have been dealing with rising operating expenses in the form of higher property taxes, insurance, repairs and maintenance, and increased labor costs.
• Rental rate growth has remained largely lackluster as the market digests the current supply wave. 

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A Perfect Storm Of Rising Insurance Costs:

Increasing Frequency of Natural Disasters

• The year 2023 set records as the warmest on record, accompanied by 28 separate billion-dollar weather and climate disasters. These events caused $92.9 billion in damages nationwide.
• More frequent and severe natural disasters and the increasing development of high-value properties in areas prone to hazards have put increased pressure on the insurance industry.
• In 2022, U.S. losses accounted for 75% of total global insured losses.
• Swiss Re, a leading reinsurer (insurance company that insures insurance companies), anticipates insured losses could double in the next decade due to extreme weather events

Rising Claims Costs, Litigation Pressures, and Construction Cost Inflation

• Litigation costs from plaintiffs pursuing substantial compensation for injuries or additional payments for disputed property damage have steadily increased by an average of 2 percent annually since 2015. These claims have added to increased insurance costs, which get passed down to the consumer.
• Inflationary pressures on material and labor costs have increased the price to rebuild damaged properties, further escalating claims costs.

Dramatic Cost Increases

• For residential apartments, insurance costs as a percentage of total expenses rose from 4% to 7% in 2024, according to the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index, but some areas are seeing even worse increases.

Strained Operating Margins

• Operating expenses for commercial real estate increased by more than one-third from 2017 to 2022, with insurance costs rising by 73% during this period.

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Immigration & Deportation Policies Under The New Administration:

• Reduced rental demand: Slowing immigration could lower the number of renters entering the market, decreasing occupancy rates and cooling some of the strength we’ve seen in absorptions during recent quarters, which also coincided with record levels of immigration.
• By our estimates, from 2022–2024, immigration was responsible for all of the 1.0 million net growth in renter households.

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The impact of interest rates on proceeds:

• For every 25-basis point increase in interest rates, loan proceeds decrease by approximately 2.6%
• If rates have gone up 50 basis points since you last updated your model, then your loan amount will be ~5.2% lower
• The example in the chart below uses a $2MM NOI, but the same relationship exists regardless of NOI
• Loan Constant = Your annual debt service divided by the loan amount. It takes into account the amortization, so if a loan is interest-only, then your interest rate and your loan constant are the same.
• DSCR = Debt Service Coverage Ratio. This is your NOI divided by debt service. Most lenders typically want the NOI to be at least 1.25x the annual debt service.
• The 10-year treasury yield has risen 70 basis points since mid-September, which reduces loan proceeds and estimated IRR returns

THE BULL CASE: Why Rates Should Fall & Multifamily Values Should Rise:

From The Pensford Letter on deficit fears (11/18/24):

If you’re scared of US fiscal health, pick another country’s 10-year bond yield to invest in instead of the United States’ 10-year which is currently at 4.45%:

• Germany – 2.35%
• Australia – 4.45%
• Japan – 1.05%
• UK – 4.47%
• Canada – 3.28%
• France – 3.08%
• Spain – 3.05%
• China – 2.06%
• Italy – 3.55%
• Greece -3.18%

Not a single developed nation has higher yields than the US. Shouldn’t that help keep a lid on US rates?

“But deficits!” A very solid point. Thankfully, we have precedence when markets get nervous about US fiscal health. What happened when the US lost its AAA rating in 2011? The 10-year yield fell from 3.0% down to 1.8%.

We’re at 120% of debt to GDP – not good. But we crossed that threshold in 2015, and rates didn’t spike. Inflation didn’t take off. The world didn’t end. Japan crossed 100% debt to GDP in 2000. They currently sit > 200%. Did their rates spike? No, it was gigantic news when their interest rates finally turned positive last year. Their 10-year is 1.05% currently. 

Fannie & Freddie Announce 2025 Multifamily Lending Caps (11/18/24)

• Fannie Mae and Freddie Mac will each be provided with $73 billion in lending capital for multifamily properties in 2025 – a combined total of $140 billion.
• At least 50% of the capital must be put toward mission-driven affordable workforce housing and they have no limits on how much they lend on those properties
• The caps are up from $70 billion each in 2024, although Fannie Mae’s volume is only at $38.5 billion so far this year
• This means the GSE’s have plenty of ammunition to lend and will continue to provide liquidity to the multifamily debt market

Multifamily permits and starts are continuing to decline, which will reduce completions (new supply) in 2026 and 2027 (11/19/24):

Multifamily starts for October came in lower than any October in the last 12 years. Year-to-date, completions are outpacing starts by 218,500 units. This is a massive deficit that will significantly reduce apartment supply in 2026. Source: Jay Parsons (11/19/24)

RealPage: Multifamily demand catching up to supply in the Southeast (11/19/24):

Apartment demand has been significant in the Southeast and is catching up to record supply levels. The Southeast region of the country, which covers markets across Florida, Georgia, Alabama, South Carolina and North Carolina, has seen sizable supply volumes recently. Roughly 111,200 units delivered in this region in the year-ending 3rd quarter 2024. Atlanta was the region leader with over 25,000 units coming online in the past year.

Meanwhile, apartment demand across the Southeast has been catching up as the region absorbed more than 93,600 units in that same time frame. Again, Atlanta was the region’s leader for demand, with 20,100 units absorbed in the past year. While demand is still about 17% behind concurrent supply volumes in the Southeast, that marked a significant improvement from the 80% delta from one year earlier. In the near-term outlook, demand is expected to get even closer to supply, closing the gap even further.

Under the hood, though, the jobs market is stagnating: (11/20/24):

• The rate at which workers quit their jobs in September was 1.9% — the lowest since June 2020 and, outside of Covid, a level last seen in 2015.
• The number of job openings in September was 7.4 million — a decline of 1.9 million from the previous year.
• An increasing share of those who do job hop are settling for lower paychecks. Some 17% of job switchers this year took a pay cut.
• Employers are sitting tight, says Daniel Zhao, lead economist at job site Glassdoor. Companies aren’t making big changes to hiring strategy. That means “fewer opportunities for workers to climb the career ladder.” They’re still plugging away at the same role they’ve had for years without the opportunity to move up internally or at a new company.
• 65% of the 3,400 professionals surveyed by Glassdoor last month said they feel stuck in their current role.
• A weaker jobs market would increase the Fed’s speed and quantity of rate cuts

Construction employment has been a bright spot in the jobs market. That could be about to change: (11/21/24):

• With permits, starts, and housing units under construction all down from their peaks, at levels at least close to consistent with an oncoming recession, the big item to look for is employment in residential construction, and construction generally.
• If manufacturing employment remains negative, and construction employment turns down, that would strongly indicate that more likely than not a recession is approaching.
• A weaker jobs market would increase the Fed’s speed and quantity of rate cuts

CoreLogic’s Single-Family Monthly Rent Data (11/21/24):

• Annual U.S. single-family rent growth registered a 2% increase, continuing a slowing trend that began in early 2024
• Single-family rents are a large component of the CPI (inflation index). It tracks on a lag, so if rents continue to cool for single-family homes, it will continue to lower monthly inflation readings in the months ahead (allowing the Fed more room to cut rates)

The heat map below shows home price to income ratios by state. The higher the number (darker states), the more unaffordable home ownership is in that state. While this is unfortunate for potential home buyers, it will keep tenants renting longer in those states:

Tenant retention rates continue to climb as buying a home becomes more unaffordable with rising rates: (11/22/24)

• Just over 54% of renters in market-rate apartments renewed their leases in the year-ending October 2024, which was a 120 basis point (bps) climb over last year

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THE BEAR CASE: Why Rates Should Rise & Multifamily Values Should Fall:

Multifamily completions (new supply) continue to surge higher, reaching 615,000 on a seasonally adjusted annual basis in October. This is up 61% from the previous year (11/19/24):

Bloomberg Speaks With Jim Bianco On Interest Rates (11/20/24):

Famous short seller Carson Block of Muddy Waters sees trouble ahead for multifamily (11/21/24):

• “A lot of multi-unit residential in the US — particularly in the Sun Belt — is in trouble,” the chief executive officer of Muddy Waters Capital LLC, said in an interview in London. “That’s the shoe that hasn’t really dropped yet, but that we think will.”
• Even before the pandemic, many properties were trading at negative capitalization rates, Block said. Cap rates measure how much net operating income a property generates compared to its value.
• Almost $76 billion of apartment complex loans are at risk of distress, according to MSCI Real Assets. That’s partly because many landlords took on floating-rate loans to modernize the properties and have been hit hard by a spike in borrowing costs in recent years.
• “A lot more of these things were purchased with ultra cheap money,” Block said, noting that now “financing costs are massively up.”
• Wall Street is also on the hook, after many of the debts were bundled into commercial real estate collateralized loan obligations. The share of such instruments that are experiencing some form of distress now stands at more than 12%, according to data provider CRED iQ. 

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The Fed Chairman struck a hawkish tone in his press conference last week, tempering market expectations for rate cuts. Other Fed officials have also been cautious on the trajectory of rate cuts. Bloomberg created a Federal Reserve sentiment indicator based on a language processing model, which has risen notably the past few weeks (more hawkish):

Multifamily prices fell 0.6% month-over-month and were down 6.1% year-over-year according to the latest data release from MSCI Real Capital Analytics (11/21/24)

• Prices are now down 20.2% from their peak in August 2022

Weekly unemployment claims fell to only 213,000, showing little weakness in the jobs market. A stronger jobs market reduces the need for the Federal Reserve to cut rates aggressively (11/21/24):

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

From The Pensford Letter On Tariffs:

• 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.

Apartments.com Monthly Rent Report – released 11/12/24:

• Rents increased 1.0% year-over-year
• They expect new apartment supply to fall by 50% in 2025 compared to 2024

Redfin Monthly Rent Report – released 11/12/24:

• Rents increased 0.2% year-over-year

Monthly CPI Report (Consumer Price Inflation) – released 11/13/24:

• 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.

Yardi’s National Multifamily Monthly Report – released 11/13/24:

• 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:

U.S. Industrial Production Monthly Report – released 11/15/24:

• Declined 0.3% month-over-month and was revised lower for the previous month
• It was the ninth downward monthly revision in the last ten months
• Capacity utilization fell to only 77.1%, its lowest since April 2021
• This weaker-than-expected economic data could speed up the Fed’s rate cuts

The cost to buy a home continues to rise and move further away from renter’s affordability with home prices, mortgage rates, taxes and insurance all increasing. The piece that is often overlooked is HOA costs, which are rising as well. From the Wall Street Journal this week:

• 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:

Redfin Monthly Rent Report – released 11/12/24:

• 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

Monthly CPI Report (Consumer Price Inflation) – released 11/13/24:

• 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

Yardi’s National Multifamily Monthly Report – released 11/13/24:

• 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%

Monthly PPI Report (Producer Price Inflation) – released 11/14/24:

• 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

Fed President Jerome Powell spoke on Thursday and signaled a slower pace of rate cuts ahead based on the strength in the economy and inflation not yet at their target:

• “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.

Retail Sales Monthly Report – released 11/15/24:

• 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

Empire State Manufacturing Monthly Survey – released 11/15/24:

• 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