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Strong economy will keep rents elevated

Strong economy will keep rents elevated
by Brad Cartier, posted in Newsletter

Jing Fu of the National Association of Home Builders (NAHB) reported that April’s job data continued to show growth despite rising rates and a slowing economy. Total nonfarm payroll employment increased by 253,000 last month, with the unemployment rate dropping to 3.4% from 3.5% in March. Residential builders and tradespeople continued to show job growth, while construction sector unemployment is trending downward.

Construction jobs declining

Source: NAHB (May 2023)

That said, Robert Dietz of NAHB reports that construction job openings are trending downward, possibly due to a slowdown in the overall real estate market. “The construction job openings rate decreased to 4.1% in March. The recent trend of these estimates points to the construction labor market having peaked in 2022 and is now entering a cooling stage as the housing market weakens.”

Zachery Phillips of Construction Dive reports that 3.7% of construction workers were laid off or discharged in March 2023, which is the highest rate seen since the beginning of the pandemic.

Augusta Saraiva of the National Mortgage News comments, “Construction jobs are set to become the next victim of high interest rates as the housing backlogs that have helped keep demand for workers steady start to diminish.”

The Mortgage Bankers Association (MBA) SVP and chief economist Mike Fratantoni comments on the overall jobs data, noting that:

“This rate of growth is likely faster than would be consistent with the Federal Reserve’s 2% inflation target. As was the case in recent months, job growth remains concentrated in just a few sectors, particularly health care and hospitality. Although we have seen several public layoff announcements, the job growth in these few sectors continues to offset losses in technology and other industries, including the mortgage market. A solid job market will provide support to the housing market. However, the inflationary pressures from this strong wage growth will likely prevent the Federal Reserve from cutting rates any time soon, even if they now are at the peak for this rate cycle.”

Danielle Hale of comments on the data, reporting that a strong job market will boost the overall housing market by giving consumers more spending power. Although, this is a double-edged sword as it puts upward pressure on prices and inflation, meaning the Fed may be looking at further rate hikes in the future.

Job growth strong

Source: (May 2023)

Brooklee Han of Housing Wire quotes Lisa Sturtevant, Bright MLS’ chief economist, as saying that “[e]ven if the Fed increases the federal funds rate again next month, it is possible that mortgage rates could come down, with lingering uncertainty in the banking sector and declining consumer confidence pushing investors to safer investments, like U.S. Treasuries. Falling mortgage rates would provide more juice to the U.S. housing market, which has been relatively subdued this spring.”

Rent data

Several monthly rent data reports were released last week, starting with Apartment List’s National Rent Report showing that rents actually increased 0.5% month-over-month in April 2023. Although this was the third straight month of increases, growth has been decelerating. 

Rents slowly declining

Source: Apartment List (May 2023)

“On the supply side, our vacancy index currently stands at 6.8 percent, surpassing the average pre-pandemic rate and continuing to trend upward. With a record number of multi-family apartment units currently under construction, some property owners may start struggling to fill vacancies for the first time since the early stages of the pandemic.”

Zumper also released its rent report showing that rents are stabilizing, with one-bedroom median rent staying flat at $1,495 and two-bedroom rents increasing 0.5% month-over-month to $1,842. Similar to the data above, the growth of rents is decelerating from pandemic levels.

Rent growth declining

Source: Zumper (May 2023)

“April marks the sixth month in a row of modest month-over-month changes in national rent prices. The roller-coaster days of the pandemic—with wildly unpredictable price changes tied to mass migrations—are behind us. File that under good news: Armed with a clearer sense of where prices are going, tenants and property owners alike can better plan and budget for the future.”

Barbara Ballinger of Globe St reports on Yardi Matrix rent data showing that apartment rents rose 0.25% in March month-over-month. This is more than double the increase from January to February and is the most significant rent jump in 2023.

Rose Quint of NAHB reports on housing affordability, noting that 71% of buyers who were actively looking for a home in Q1 2023 spent 3+ months searching without success. This highlights the ongoing upward pressure on demand for rentals, which will keep rent prices higher for the foreseeable future.

Finally, Jeff Tucker of Zillow reports on its data showing a similar trend to the above figures. “Typical asking rents at the national level now stand at $2,018, which is 5.3% higher than one year ago, and 0.5% higher than the peak of $2,008 observed in September 2022. That annual growth rate is now down almost 12 percentage points from the peak growth rate of 16.9%, the record-high pace reached in February 2022.”

#LocalNews: Equity Rich ZIPs, Austin, and Seattle.

ATTOM Data Solutions released its quarterly Home Equity & Underwater Report, showing that 

Q1 equity declines were led by Arizona, Nevada, Utah, and Washington, whereas the leading states of equity-rich homes were Vermont, California, Idaho, and Montana. The top zip codes with the most significant quarterly declines in equity were as follows: 

  • Justin, Texas 
  • Sanibel, Florida 
  • Hartsville, South Carolina 
  • Russellville, Kentucky 
  • Zephyrhills, Florida 

ZIPs who lost the most equity

Source: ATTOM Data Solutions (May 2023)

Lily Katz and Chen Zhao report on recent Redfin data showing that 1 in 4 homes in both Seattle and Austin cost less now than they did a year ago. “One-quarter of homes for sale in Austin, TX (25.8%) have lower estimated monthly housing payments than they would have if they had been for sale a year ago. That’s a higher share than any other major U.S. metropolitan area Redfin analyzed and more than triple the nationwide share of 7.1%. Seattle is close behind, at 23.6%, followed by San Francisco (18.8%), New York (18.3%) and Pittsburgh (15.6%).”

CoreLogic released a home insights paper last week showing the metros with home price changes year-over-year in April, with Miami (+14.8%) and Houston (+5.1%) posting the most significant gains. Further, “[t]he CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that Provo-Orem, UT is at a very high risk (70%-plus probability) of a decline in home prices over the next 12 months. Boise City, ID; Lakeland-Winter Haven, FL; Salt Lake City, UT and Ogden-Clearfield, UT are also at very high risk for price declines.”

Markets most at risk

Source: CoreLogic (May 2023)

Zillow reported on markets with the largest year-over-year rent growth, with Boston (+8.5%), Cincinnati (+8.1%), and Providence (+8%) taking the top rent growth spots, while Las Vegas (-1.2%), Phoenix (+0.7%), and New Orleans (+1.4%) took the bottom spot. The report notes:

“This continues a consistent story, ever since the national market began its cooldown just over a year ago, that the most resilient rental markets have been affordable Midwestern and Northeastern cities, plus Boston. The weakest year-over-year rent growth can mostly be found out West. On a year-over-year basis, rents are down 1.2% in Las Vegas, and have increased the least in: Phoenix (0.7%), New Orleans (1.4%), Austin (1.8%), and San Francisco (2.1%). These represent major slowdowns from the very high annual growth rates one year ago in Las Vegas (21.4%), Phoenix (21.9%), and Austin (20.5%), and another consecutive year of relatively low rent growth in San Francisco (11.0% in the year through April 2022).”

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