Multifamily Rent Payments Stable, but Softening Rent Levels Appearing
The Need for Additional Stimulus as 'Green Shoots' Are Appearing:
Federal Reserve Chairman Powell’s call last week for more fiscal stimulus to prop up the economy constituted an unusual appeal to elected officials and underscored the risks facing the U.S. economy. Fed officials traditionally do not comment on government policy, but Powell warned additional aid may be needed to “avoid long-term economic damage” as the recovery may be slower than hoped.
Since the onset of the pandemic, Congress has allocated a total of $2.9 trillion to fiscal stimulus measures.
Congress and the Administration, however, are far from agreeing to terms on another round of relief. The House of Representatives narrowly passed a $3 trillion package on Friday, which was not a result of bipartisan negotiations. The bill has little chance of moving through Congress as Senate Majority Leader McConnell described the measure as “an unserious product from an unserious majority.”
Despite the sober tone of Powell’s comments, some sectors of the economy are beginning to show some signs of revival.
The Housing Market Index increased seven points to 37 during May, after suffering a record drop in April, as homebuilders became cautiously more optimistic about single-family home construction. And the latest data from John Burns Real Estate Consulting shows weekly new home sales improving for two consecutive weeks.
The Las Vegas economy has been hard hit, and the trajectory of recovery there remains unclear. However, last week the Nevada Gaming Commission issued guidelines for reopening casinos. Casinos will be limited to 50% capacity with conventions limited to 250 people. Several casinos and resorts are actively seeking approval to reopen with new restrictions in place with the goal of limiting the chances of spreading infection.
Four-year University Closures in Fall 2020 Could Have Ripple Effects in Markets Dependent on Students:
Whether students return to college and university campuses next fall has implications not only for local economies, but potentially for commercial multifamily and student housing demand. The California State University (CSU) system announced last week that Fall 2020 classes will be held online, which signals a potential inflection point for markets fueled by the student economy. With 482,000 students, CSU is the largest four-year educational system in the country, and its decision has attracted nationwide notice that could lead smaller higher-education institutions to follow suit.
The implications for multifamily rentals would be especially pronounced in smaller college towns. In Ames, IA, for example, students account for 25.6% of the metropolitan population.
The economies of many larger markets, in contrast, are more diversified, so the impact of online classes on real estate markets would be more localized. In Austin, TX—home to the University of Texas—students make up 4.4% of the metro population with large numbers of students living in the Downtown/University submarket. There are 164,000 students in the Phoenix, AZ metro, but they account for only 3.4% of the population with the greatest concentration of students in Tempe.
Metropolitan Areas with the Largest Student Share of Population
Core inflation (all items less food and energy) fell 0.4% during April. While this is unsurprising, it is important to recognize the extent to which households pulled back on discretionary spending because of lost wages and stay-at-home orders. The figure marks the largest decline in at least two decades and underscores the depth to which the pandemic has reshaped household finances. Prices for housing held steady at 0.0% month-on-month, while prices for airline fare, motor vehicle insurance, and clothing registered the largest decreases.
Energy prices contributed to a 0.8% decrease overall in the CPI-U. Gasoline of all types registered a 20.6% drop in prices month-over-month and a 32.0% drop year-over-year. With more states easing social distancing and stay at home policies, we expect demand to return and bring stability to this part of the market.
Seasonally Adjusted, Month-on-Month Change in CPI-U by Expenditure Category
Multifamily Rent Payments Stable, but Softening Rent Levels Appearing:
The multifamily market continues to experience resilience several weeks after stay-at-home orders were enacted in most major metropolitan areas. NMHC reports that 80.2% of renters had made a partial or full May rent payment before the 6th, a slight improvement over April 2020 and only 150 bps below May 2019. An additional 7.5% of renter households paid rent between May 7th and 13th.
Yardi, a contributor to the NMHC rent tracker, reports that unit rents fell 0.5% to $1,465 during the month of April, a larger decline than any during the GFC and essentially bringing rents to August 2019 levels.
MRI separately indicated that rents declined 2% during April and concession volume increased 53% for the one million units that it tracks. At the same time, however, renewal rates and the share of 12-month leases were slightly up, while vacancy rates have dropped 15%.
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.
This analysis contains various forward-looking statements that are not historical in nature. You are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this presentation. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and we cannot guarantee future results or the successful implementation of the strategies discussed in this presentation. We are under no duty to update any of the forward-looking statements after the date of this presentation to conform these statements to actual results. Certain information contained herein has been obtained from published sources, agencies of the U.S. government and from third-parties, including without limitation, market forecasts, market research, publicly available information and industry publications. Although such information is believed to be reliable for the purposes used herein, Bridge does not assume any responsibility for the accuracy or completeness of such information. Similarly, forecasts or market research, while believed to be reliable, have not been independently verified and Bridge does not make any representation as to the accuracy or completeness of such information. All information is provided on an “as is” basis only. By using this information, the reader agrees that Bridge shall not have any liability for the accuracy of the information contained herein, for delays or omissions therein, or for any results based on your use of the information which are not consistent with your objectives. Without limiting the foregoing disclaimers, the information provided herein is not guaranteed to be accurate or complete, nor does Bridge take responsibility for it. The information contained herein has not been audited and Bridge does not guarantee its suitability for any purpose. All information is subject to change and/or withdrawal at any time without notice. Certain information included herein may refer to published indices. Indices that purport to present performance of certain markets or the performance of certain asset classes or asset managers may actually present performance that materially differs from the overall performance of such markets, asset classes or asset managers.
Past performance is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy. Any research in this document has been procured and may have been acted on by Bridge for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of Bridge or any of its affiliates and no assurances are made as to their accuracy.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any Bridge funds and has not been prepared in connection with any such offer.
Copyright 2020, Bridge Investment Group LLC. “Bridge Investment Group” and certain logos contained herein are trademarks owned by Bridge.
Sign up and receive email updates of all new blog posts!