Record Number of Multi-Family Housing Units Under Construction

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Perspective on Current Capital Markets Themes link 

• The Federal Reserve is intently observing the relationship between inflation and the labor market, with a potential policy shift not expected until late Q1 or early Q2 of 2024.

• The economy might face a recession as it adjusts to a prolonged period of higher interest rates, with a new growth cycle anticipated around 2025.

• Super-Core Inflation, which offers a more detailed view of economic costs excluding Housing Services, has seen a rise, highlighting the resilience and tightness of the labor markets in sectors like Airfare, Professional and Medical Services, and Transportation Services.

Rents Continue to Dip, While Home Prices Rebound to All-Time Highs link

• The U.S. rental market experienced rapid price increases in 2021 and 2022, with year-over-year rent growth peaking near 20%. However, home prices were escalating even faster, making the cost of owning versus renting more significant than ever.

• By 2023, the gap between home prices and rents expanded. Home prices quickly recovered from a brief decline, while rents decreased year-over-year and continued to soften.

• During the pandemic's first year, home prices skyrocketed while rents remained mostly unchanged. By the end of the first year, rents returned to pre-pandemic levels, but home prices surged by 13.5%. In the subsequent year, rent prices were 16.3% higher than in March 2020, and home prices increased by 33.5%.

US housing starts fall to lowest level since 2020 in worrying sign for the economy link

• August US housing starts plummeted to its lowest in three years, indicating potential economic concerns. This decline in homebuilding is attributed to mortgage rates persistently hovering above 7%.

• US housing starts, marking the onset of new home construction, dropped by 11% in August to 1.23 million, the lowest since June 2020. This was below the anticipated 1.44 million units by economists.

• Despite the downturn in housing starts, housing permits saw a 7% surge to 1.54 million in August, hinting at a potential rebound in single-family construction in the upcoming months.

Near Record Number of Multi-Family Housing Units Under Construction link

• Total housing starts in August 2023 saw a decline of 14.8% compared to August 2022, with a year-to-date decrease of 12.5% from the previous year.

• Over the past 16 months, housing starts have been lower year-over-year for 14 months, with only May and July 2023 being exceptions.

• Despite the decline, the expectation is that total starts will continue to decrease this year, but the year-over-year comparisons are anticipated to be less stark for the remainder of the year.

Low-end single-family rentals are getting more expensive link

• U.S. single-family rent increases in July 2023 were at a 3.1% year-over-year gain, down from 3.3% in June. The Single-Family Rent Index (SFRI) showed a drop for the 15th consecutive month, influenced by factors like a surge in apartment construction.

• Metro areas mostly saw single-digit annual rent growth, but Las Vegas, Miami, and Austin, Texas recorded declines. St. Louis had the highest year-over-year increase at 7.3%, with Chicago following at 6.3%.

• CoreLogic's analysis of rental price tiers revealed that the lower-priced category saw a growth of 4.66%. In contrast, detached rental prices increased by 2.4%, while attached rental prices saw gains of 3.8%.

Class A Rent Performance Weighing Down Some Apartment Markets link

• Across the U.S., apartment rent growth nearly stopped in August, with an overall annual effective asking rent change of just 0.3%. Class A rents, however, showed a 0.7% increase, while Class B remained stagnant and Class C showed a 0.4% decline.

• In several major apartment markets, Class A rent changes, often indicative of new supply, are dragging down overall market figures. In some areas, Class A rent changes are over 700 basis points below Class B and C figures and more than 300 basis points below market averages.

• Cincinnati stands out with Class A rents growing only 0.5% annually in August, while Class B and C units saw growth above 5%. Cincinnati ranks second among the top 50 U.S. markets for rent growth, just behind Newark.