The Weekly Briefing - July 13th, 2020

The Weekly Briefing – July 13th, 2020

In This Week’s Brief:

  • Increasing Number of States Pausing or Reversing Reopening Plans
  • Private Construction Costs Register Second Largest Decline in a Decade
  • Suburban Multifamily Properties Continue to Outperform Urban Counterparts
  • Sizeable Numbers of Renters Relying on Short-Term Sources of Financial Support
  • Mortgage Forbearance Levels Fall to Two-Month Lows

Increasing Number of States Pausing or Reversing Reopening Plans

Rising coronavirus case counts have led governors in a growing number of states to hit pause on reopening plans or in some cases even reimpose restrictions lifted just a few weeks ago. The majority of states changing course on reopening plans are in the West or Southeast, where new virus cases are highest. Currently, nine states have at least partially reversed course on reopening, and another 12 have hit pause. As of midday today, California Governor Newsom announced significant rollbacks including the closure of indoor activities ranging from restaurants, bars, museums, zoos, and movie theaters. California enacted further restrictions for 30 counties on the state’s watchlist, which represents approximately 80% of the state’s population. These restrictions include but are not limited to gyms, places of worship, and offices for non-critical sectors. Other states may follow suit. For example, the Texas Governor Abbott has issued a statewide mask order, and on Friday he said the resurgence of the virus could require, “Texas closing down.” For an up-to-date look at the status of restrictions and reopening plans on a state-by-state basis, see the tracker prepared by the New York Times here.

Private Construction Costs Register Second Largest Decline in a Decade

After three and a half years of consecutive monthly increases, construction costs for non-government projects have fallen in three of the past four months, including a 0.3% decline in June, which was the second largest decrease month-over-month in ten years. Construction costs are still up 2.3% YOY because of steady growth during the latter part of 2019. The Bureau of Labor Statistics reported declines that are in line with figures published last week by industry analysts and come as overall construction investment has slowed. During May, total U.S. construction spending declined 2.1% to a seasonally adjusted annual rate of $1.4 trillion as projects in many metros across the country were temporarily halted because of bans on non-essential activities. Industry reports say the slowdown in spending has led to increased competition among contractors, who have become more eager to lock down new business because of heightened economic uncertainty.

Suburban Multifamily Properties Continue to Outperform Urban Counterparts

Four months after the virus outbreak pushed the U.S. into recession, suburban multifamily assets continue to demonstrate resilience compared to urban assets. CoStar Analytics reports that suburban rent growth is positive for the year so far and has nearly recovered to its mid-March peak, while the share of suburban properties offering concessions is less than half that of urban properties. Also, a ‘same-store’ analysis shows 35% of suburban properties have seen vacancies rise over the past six months compared to 49% of urban assets. At the metro level, low-cost, suburban submarkets have experienced the strongest rent performance since the start of the year with the suburbs in Richmond, Norfolk, and the Inland Empire posting the largest gains. Suburbs in Bridge markets such as Sacramento, Salt Lake City, Jacksonville, and Atlanta are also among the top performers with rents up 0.4% to 1.2% YTD. In contrast, high-cost urban areas such as the downtown areas in Palm Beach, San Jose, and San Francisco have experienced the steepest rent losses.

Multifamily Market Trends: Suburban vs. Urban

Sizeable Numbers of Renters Relying on Short-Term Sources of Financial Support

Data collected in the Census Bureau’s most recent Household Pulse Survey highlight the uneven impact of the virus-induced economic downturn that has left many renter households in a more precarious financial situation compared to homeowners. Over the seven-day period that preceded the survey, 61.3% of renters were able to use regular income sources to cover expenses, significantly lower than the 76.4% of homeowners who could do the same. In place of regular income sources, more renters than homeowners have turned to government aid as well as friends and family to make up for shortfalls. However, the continued availability of expanded government assistance is uncertain. During the preceding week, renters relied on a mix of alternative sources of funding:
  • 26.5% used the one-time economic stimulus to cover expenses.
  • 17.7% used unemployment benefits, which will sunset at the end of July without new legislation from Congress.
  • 19.7% of renters borrowed funds from friends or family.
  • 25.1% of renters relied on credit cards or other loans, a rate similar to that for homeowners.

Funds Used in the Past Seven Days to Meet Spending Needs

Mortgage Forbearance Levels Fall to Two-Month Lows

Last week, both the number and the share of mortgages in forbearance declined to the lowest level in two months, according to data published by Black Knight. The number of mortgages in forbearance declined in each of the past two weeks to stand at 4.1 million compared to an average of 4.7 million during the preceding weeks, and the share of mortgages in forbearance dropped 100 bps over two weeks to 7.8%, a figure not seen since early May. The improvements suggest a portion of households have regained their financial footing in recent weeks after the economy added 8.8 million jobs during May and June. However, the mortgage market faces significant uncertainty moving forward as rising virus levels across much of the U.S. appear to be sapping consumer confidence and slowing the recovery.

Disclosures and Disclaimers
This is a general analysis of the real estate market prepared by Bridge Investment Group LLC (“Bridge”) and is not related to any specific products or services of Bridge or any affiliate. Sources for statistics and other factual data included herein are maintained by Bridge Research. Such data has not been verified by Bridge and we can give no assurance that it is accurate or complete. Statements contained herein that are nonfactual constitute opinions of Bridge, which are subject to change. Financial projections contained herein are estimates only and are based on assumptions, including assumptions regarding future rent growth, the availability and cost of financing, changes in market capitalization rates, and various micro- and macro-economic trends. No assurance can be given that either the projections or the assumptions will prove to be accurate. Investment in real estate involves substantial risk of loss.
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