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Rate cut expectations in 2024 diminish on strong economic data

by Brad Cartier, posted in Newsletter

Apartment List released its monthly rent data report showing a continued slowdown in rent growth. The market saw negative rent growth for the sixth month in a row, with the median rent falling to $1,373. Year-over-year rent growth is now at -1%. Before this slowdown, rent prices surged in 2021-2022, peaking at 18% YoY. Despite the decline, the median rent is still $200+ higher than three years ago.

Rent drops

Source: Apartment List (February 2024)

“Regionally, rents fell in January in 73 of the nation’s 100 largest cities, and prices are down year-over-year in 53 of these 100 cities. The sharpest rent decline over the past year has been in Oakland, CA, where rents are down by 9.1% year-over-year. Boise, ID; Austin, TX; Atlanta, GA; Nashville, TN; and Portland, OR have all also seen rents fall by 5 percent or more.”

In its rent report, Zumper had similar findings, seeing rent for one- and two-bedroom units remaining flat at $1,496 and $1,847, respectively. According to Zumper, the record new supply seen in 2023 will continue in 2024, which is good news for renters as more supply will put downward pressure on prices. Reportedly, the Sun Belt saw the most rapid price decreases while the Midwest saw increases.

Rent drops

Source: Zumper (February 2024)

“[M]any Midwestern cities have enjoyed ongoing increases in rent prices over the last several months. Currently, the four cities with the largest year-over-year increases are in the Midwest: Cleveland, Milwaukee, Columbus and Chicago (all are up by double digits). This resilience can be credited mostly to modest changes in supply and demand.”

Ana Teresa Solá of CNBC reports on the forthcoming increase in supply, highlighting that newly built apartment construction, especially in the higher-end units, will inflict a ‘filtering-down effect’ which will ultimately improve rent affordability. “Increasing the supply of higher-rent Class A units often encourages tenants to upgrade to new units, making prices in those units level out and boosting vacancy in Class B and C units.”

Apartment construction highs

Source: CNBC (February 2024)


The U.S. economy remains robust following the release of the jobs report, which surprised on the upside, according to Sarah Marx of HousingWire. Specifically, In January, the U.S. economy added 353,000 jobs, exceeding the monthly average of 255,000 new jobs per month in 2023. The national unemployment rate remained unchanged at 3.7%, and average hourly earnings for the private sector increased 0.6% month-over-month and was up 4.5% annually. 

According to Lewis Krauskopf of Reuters, this solid economic data has dampened expectations of the Fed lowering its benchmark rate any time soon. “Market expectations of a near-term rate cut dimmed after the jobs data, with futures tied to the Fed’s main policy rate reflecting a 70% chance of the central bank lowering borrowing costs at its May 1 meeting, from over 90% on Thursday.”

Jeff Cox of CNBC jumps in on the conversation, noting that this data reaffirms that the U.S. economy is on solid footing but does lower the prospect of more imminent rate cuts.

Job growth strong

Source: CNBC (February 2024)

Axios reported on GDP growth numbers, showing that the U.S. had the fastest-growing economy among large advanced economies last year and is expected to do so again in 2024. The U.S. led the pack in 2023 with an estimated GDP growth of 2.5%, with Japan coming in second at 1.9%. For 2024, the U.S. GDP is projected to grow by 2.1%, with Canada behind at 1.4%.

GDP growth strong

Source: Axios (February 2024)

Office market

Although the overall economy is running strong, the office asset class is facing the prospect of $1.2 trillion in value loss, according to Barry Sternlicht, Chairman and CEO of The Starwood Capital Group. As reported by The Real Deal, Sternlicht believes that offices are now worth $1.8 trillion, representing $1.2 trillion of losses for an asset class once worth $3 trillion.

Indeed, Emily Fu of ConnectCRE reports that 2023 was the worst year on record for office debt maturity. 

“Only $319.8 million of CMBS office debt reached its fully extended maturity date…making 2023 the worst on record for timely CMBS office loan payoffs…Of the loans that failed to pay off at maturity in 2023, less than half secured formal extensions, while the remainder (approximately $3.1 billion) will likely involve workout/extension or default/liquidation scenarios, indicating potential trends in value discounts for troubled office assets.”

According to a new report from Colliers, 2023 saw office vacancy rates jump 120 basis points to 16.9%, surpassing the peak of 16.3% at the height of the Global Financial Crisis (GFC). Further, the market now has 233.3 million square feet of available sublease space, much higher than the previous peak of 133.3 million in Q2 2009.

There has also been a notable slowdown in office construction that is expected to continue in the medium term.

Office construction down
Source: Colliers (February 2024)

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