The Weekly Briefing - May 4th, 2020

In This Week’s Brief

Unpacking the First Quarter GDP Numbers Multifamily Construction Activity in Bridge Markets Projected Rapid Growth in 65+ Population Underscores Growing Need for Seniors Housing Residential Mortgage Forbearance Numbers Continue to Climb July 31st a Potential Inflection Point for Unemployed Workers

Market Notes

Unpacking First Quarter GDP Numbers Advance first quarter GDP figures released last week estimated that economic activity fell at an annualized rate of 4.8%, which would mark the first decrease since early 2014 and the largest since the Global Financial Crisis. The number should be taken with a grain of salt, however, as it is based on incomplete source data, and final GDP numbers are revised by an average of 0.6 percentage points. However, these are not typical times, and we should expect some potential for wider revisions. Perhaps unexpectedly, health care accounted for nearly half the decline in GDP at negative 2.25%. This is likely due to routine check-ups and elective surgeries that have been cancelled or postponed because of the ongoing pandemic. Less surprising were sizeable declines in recreation and food services and accommodations as households were forced to pull back on spending because of stay-at-home orders and lost wages. Spending on motor vehicles and clothing also represented major drags on the GDP figure. On the positive side of the ledger, residential spending was up 21% over the previous quarter and provided a 0.7% boost to GDP. During this period of volatility, construction activity was deemed an essential business and continued with minimal interruptions in many parts of the country. One broader takeaway from the latest data is that there will be no economic recovery without a revival in consumer sentiment. Personal spending fell 7.5% in March, the largest decline in 60 years of record keeping, according to a separate report issued by the Bureau of Economic Analysis. But even as states begin lifting restrictions, it is too early to predict when consumers will resume normal spending patterns.

Multifamily Construction Activity in Bridge Markets Markets projected to receive the highest levels of new supply benefit from inherent structural advantages that are likely to provide lift to multifamily demand. Charlotte, Nashville, Raleigh, and Salt Lake City benefit from ‘brain gain’ because of demonstrated abilities to attract well-educated workers, while Oakland/East Bay is likely to remain appealing for its relative affordability compared to other parts of the Bay Area. These markets all also enjoy the advantage of entering the current crisis with healthy vacancy rates that are in line with the U.S. vacancy rate, mitigating the risk of oversupply. 2020-2021 Projected Deliveries as a Share of Inventory & Current Vacancy Rate by Market

Projected Rapid Growth in Seniors Population Underscores Growing Need for Seniors Housing While pre-COVID-19 projections are likely to shift, Esri Demographics offers some insight over what we might expect in terms of growth and migration during the next five years. With the oldest Baby Boomers turning 74 this year, the 65+ population is projected to become the fastest growing age cohort in the U.S., and seniors’ growing presence will be pronounced in various markets across the country. Central Texas, including both Austin and San Antonio, is projected to experience the fastest growth in the seniors population of any major market at an annual rate of 4.6%. Dallas, Houston, and the Front Range follow closely with population increases exceeding 4.4% per year. Southern California and greater New York City are expected to see a more modest pace of growth, but the markets are projected to add 460,000 seniors each in the next five years because of the large baseline populations of Baby Boomers. Regions Projected to Add 100,000 or More Seniors (65+) in the Next Five Years:

Forbearance Numbers for Residential Mortgages Continue to Climb Data compiled from the Mortgage Bankers Association Forbearance and Call Volume Survey shows that the total number of loans in forbearance jumped by a full percentage point compared to a week prior and now stand at 7.54% of portfolio volume, up from a pre-COVID figure of 0.25%. Mortgages backed by Ginnie Mae have undergone the largest increase since early March with more than one in every ten loans now in forbearance, while Fannie Mae and Freddie Mac loans have experienced comparatively less disruption with 5.85% of loans currently in forbearance. Loans in Forbearance as a Share of Servicing Portfolio

July 31st a Potential Inflection Point for Unemployed Workers The end of July could represent a turning point for Bridge residents who have lost their jobs because of the pandemic and resultant business closures. Provisions in the CARES Act significantly expanded unemployment benefits by $600 a week, a 220% to 360% increase over baseline assistance levels depending on the state as well as a lifeline for many households. The additional support, however, will expire on July 31st if no extension is passed by Congress, and many residents who are currently managing collecting unemployment will find it more difficult to cover expenses and may seek more flexibility in rent payments. Estimated Average Hourly Wage Below Which Unemployment Benefits Exceed Job Income

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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